Insurance Industry Still at Developmental Stage

Ebere Nwoji examines the performance of the insurance industry as the country celebrates its 58th Independence Anniversary

The Nigerian insurance industry after 58 years of the country’s independence, is one of the few sectors of the economy that are still at growing and developmental stage.

Indeed, though the industry is older than Nigeria’s independence having been in operation for over a century, its stage of development compared with its sister sector, the banking industry, is still not satisfactory.
But in recent times, it has started recording some notable achievements expected to reposition the sector.

Indeed, the insurance industry is apparently battling with a number of challenges that have retrogressed its growth.
Notable and most current among positive changes recorded by the industry is the on going effort by the regulator to address the low operating capital syndrome which has over the years stunted the sector’s growth as as most of the big ticket transactions go to foreign insurers due to lack of financial capacity by indigenous insurers.

The industry in January 2013, successfully enforced the ‘no premium, no cover’ law which non-implementation over the years plunged operators into huge debt that nearly killed the industry.
The result was the industry’s inability to pay claims when risks occurred as well as the inability to handle capital intensive accounts which were often taken abroad.

At present, the industry operates on cash basis and is well positioned to pay claims and handle big accounts.
Closely connected to this is the problem of activities of fake insurance operators, especially motor and marine insurance operators, which many years drained the industry’s vault.
Currently, the industry has been able to address this through its insurance industry database platform set up by the Nigerian Insurers Association.

The development of micro insurance which the industry is experimenting on presently, is another milestone recorded by the industry in recent years.
Also the introduction of the Risk Based Supervision model which the industry adopted last year is a major change that has classified the operating firms according to their financial capacity in business handling and enable them operate in line with their solvency margin.

These changes and more if sustained, would in the nearest future turn around the fortunes of the industry and reposition it as a major contributor to the GDP of the economy.
Prior to these changes, the insurance industry in Nigeria since the exit of British operators, has recorded a chequered history due to activities of the early Nigerian practitioners resulting in alienation of the people to the industry. Indeed, the industry, has suffered the worst neglect and poor patronage as insurance ranks last in the scale of preference of an average Nigerian.

The industry was so abandoned such that only very few Nigerians are willing to buy insurance, work in an insurance company or want to have anything to do with the industry.
The sector’s low capital base, combined with poor patronage of the industry resulted in low premium income and its low contribution to the country’s GDP, which has remained at less than one per cent.

To address the challenge of low capital base in the sector, the federal government, through the National Insurance Commission( NAICOM), had over the years carried out major recapitalisation exercise that upgraded the minimum capital base of the industry from N50 million, to N150 million then to the current recapitalisation directive which has continued to cause ripples.

This last recapitalisation exercise by the Emmanuel Chukwulozie led NAICOM, raised much dust more than the previous exercises in the industry.
Having secured enough capital, the regulatory body resolved to face the challenge of deepening insurance penetration in the country to raise the industry’s premium.
NAICOM captured this in what it called Market Development and Restructuring initiative (MDRI) which it launched in 2009.

The initiative has objectives of transforming the industry from N380 billion premium income to a trillion-naira industry.
This, the commission said would be done through the enforcement of compulsory insurance.
It listed five compulsory insurances stipulated by the Insurance Act of 2003 for effective enforcement. These are the third party motor insurance, Statutory Group Life Insurance Employee’s Compensation (which replaced Workmen Compensation), Occupier’s Liability Insurance, Builder’s Liability Insurance and health Care Professional Indemnity Insurance.
The commission launched these insurances in the six geo political zones of the country and declared that enforcement should commence in March 2011.

The MDRI also has the objective of creating 50,000 jobs through the agency system. The initiative was also targeted at fighting against fake insurance practice in Nigeria.
The regulatory body has been at the fore front of efforts to see that the initiative achieved its objectives.
Although at the onset the insurers were far from giving their support to the commission as they preferred the usual way of doing their business.

However, of recent, they have started aligning with the commission especially in the area of retail insurance.
Many operators are now designing products that will attract the interest of Nigerians at the grassroots instead of chasing government and corporate businesses around.

By its original design, the first phase of the MDRI was between 2009 and 2012. This was not achieved at the targeted time as the industry’s premium remained at N300 billion as at December 2012, prompting the then commissioner to declare that come the second phase of the initiative which will last between 2013 and 2017, the industry will achieve the target.
Also the industry, has solved the problem of disjointed and non transparent accounting system as the it migrated from the Nigerian Accounting Standard Board system to International Finance Reporting standard(IFRS).

The industry also launched the corporate governance structure and the anti-money laundry structure in order to remain globally competitive.
Still in search of ways of growing the industry’s premium, the commission in 2010 had launched guidelines on insurance of oil and gas business in Nigeria as a way of ensuring that local content policy of federal government is implemented in the insurance industry.

Despite all these, the industry is still far from meeting the target set by its former Commissioner of Insurance, Fola Daniel, which was that the value of insurance contracts would rise to about N1 trillion ($6.4 billion) from N300 billion in 2017, and that the industry, would contribute about three per cent to the country’s GDP, up from the current 0.6 per cent. He had also targeted that penetration would increase to 22.5 per cent from 10 per cent.

He had said compulsory motor-vehicle insurance, which makes up most contracts now, would remain at about 10 per cent by 2017, while life insurance would constitute seven per cent, general business insurance three per cent and petroleum companies’ insurance 2.5 per cent.

Nonetheless, one of the major growth plans which the industry operators have been able to achieve within the period is the development of the Nigerian Insurance Industry Data base by the Nigeria Insurers Association (NIA)
The NIID is a central system that allows all insurance companies to store all valid policy real time.
Also, the educational arm of the industry, the Chartered Insurance Institute of Nigeria (CIIN) few years back, collaborated with the ministry of education and has obtained approval for inclusion of insurance as a subject of study in senior secondary schools in the country.

The industry has also formed a consultative committee comprising executive members of various arms of the industry.
The relevance of the committee is that henceforth, the industry would speak with one voice in any matter of interest, rather than speaking separately as individual arms.

However, there is still room for growth for the industry. Efforts should be made to ensure that the underwriters and brokers develop and promote retail insurance which at the international level is now the cash cow of insurance industry.

Government should stop encroaching in the industry’s territory by taking away its businesses to other sectors while the operators should insist on playing according to rule when it comes to pricing.

Nigerian workers should prevail on government to give them their right in securing their group life insurance scheme just like pension scheme.
For three consecutive years, the federal government has not paid for its workers’ group life insurance and according to the insurers, any of such workers that dies would have nothing paid to his family.