Challenging Year for Insurance Sector

Ebere Nwoji highlights events that shaped the insurance sector in 2020
The year 2020 is unarguably an exceptional year for the insurance sector and other businesses in the country.

This is due to the negative factors that slowed down normal business activities in the year.

These factors and their consequences exerted much pressure on government, cooperate citizens and individuals.

Against this backdrop, towards the end of the year, the Commissioner for Insurance, Sunday Thomas challenged insurance operators to rise to the task of reinforcing the economic resilience of individuals, businesses and the economy at large.

On their part, the insurers described the year as a challenging one that required operators at all levels to plan for the future to be in position to manage present and future risks confronting the industry.

Prominent among these challenges was the much dreaded COVID-19 pandemic and its associated lockdown on businesses which lasted between February and September 2020.

The consequences of the pandemic and its lockdown made insurance chief executives like the Managing Director, Anchor insurance, Mr. Austin Ebosa and his counterpart Mr. Ben Ujoatuonu of Universal insurance to describe the year as an exceptionaly challenging year for insurance sector.

During the year, the sector also struggled to realise its potential especially that of meeting regulator’s capital increase requirement.

With the lock down, although operators embraced work- from-home initiative as well as use of technology in product marketing and selling, most firms operated much below capacity.

The industry, while trying to come out of the pandemic was also faced with the challenge of the huge claims on account of the damages from the nationwide civil unrest that followed the #ENDSARS protests.

Though operators said they are yet to receive full report of quantum of claims from the unrest, unofficial report put the claims to be paid by insurers at N11 billion. The huge claims during the year was not peculiar to Nigerian insurers.

For instance, study on the impact of pandemic by Allianz Global Corporate & Specialty (AGCS), the parent body of Allianz Nigeria, had stated that the outbreak of the virus compelled global insurers to pay $110 billion claims in 2020.

The study also observed that the pandemic brought mixed feelings on risks experiences and risk exposures of global firms depending on business lines.

The Chief Claims officer of AGCS, Thomas Sepp, had said the wider changes in society and industry brought about and accelerated a long-term impact on claims patterns and loss trends in the corporate insurance sector.

“The growing reliance on technology, shift to remote working, reduction in air travel, expansion of green energy and infrastructure and a rethinking of global supply chains will all shape future loss trends for companies and their insurers,” he had said.

Here in Nigeria, operators had to contend with customers’ demands and claims on business disruption in form of premium refunds. These included premium paid on travel insurance especially those whose flights were canceled as a result of the lockdown.

Also operators had to refund part of premium collected on motor insurance policies especially comprehensive motor insurance policies as well as on premium paid on aviation insurance as a way of retaining their customers’ good will.

The industry during the COVID-19 period collectively supported the federal government in the fight against the pandemic by contributing N11 billion for health insurance cover for the front line health workers.

The industry through the Nigeria Insurers Association (NIA), the umbrella body of insurance underwriters packaged life insurance cover for the health workers in addition to the individual companies’ contributions.

The sector during the year had a new commissioner for insurance, Thomas, who took over from the erstwhile commissioner, Alhaji Mohammed Kari.

Thomas, during the year made the recapitalisation exercise more convenient for operators by dividing the exercise into two phases.

With this, operating firms were given up to December, 2020, instead of June, to provide 50 percent of their required minimum capital, while making up the balance by December 2021.

Going by the new capital regime, life insurance underwriting firms, which currently trade with N2 billion as their minimum capital, will compulsorily by June 30th, 2020, shore up their capital to N8 billion, representing 300 percent increase.

Insurance firms underwriting general business were by the new paid-up share capital regime, expected to shore up their capital from N3 billion to N10 billion, showing over 200 per cent increase. Also, composite insurance firms, that is, firms underwriting both life and general business were expected have to raise their capital from the current N5 billion level to N18 billion, representing over 200 per cent increase, just as reinsurance firms will move up from the current minimum capital of N10 billion to N20 billion showing 100 percent increase.

With the two phase recapitalisation bid, each category of underwriter were required to raise 50 per cent of the above minimum capital by December 2020, while raising the balance by December, 2021.

With the claims from the civil unrest, the insurers requested further shift in the recapitalisation exercise to enable them meet the claims emanating from the unrest.
Overall, struggle to meet the new capital requirement at the appointed time during the year kept the underwriting firms on their toes.

Their tension rose higher when NAICOM announced that it will not accept non-convertible assets as part of the capital. Indeed the insurers during the year continued to search for both foreign and local investors.

While some of them were lucky in this regard to get strong global players that injected funds into their operations, others were not as they resorted to rights issues.

Their adventure in this regard was made more difficult by the fact that insurance stock over the years have not been investors’ delight because aside being a penny stock, many insurance firms hardly pay dividends.

Owing to this, many firms’ offers were not fully subscribed.

Firms like Mutual Benefit Assurance, AIICO Insurance, Sovereign Trust Insurance among others currently have their rights issues in the market.

Aside the recapitalisation issue, the insecurity situation in the country impacted negatively on the industry during the year.

Indeed, the industry in 2020 suffered a carryover of some of the negative factors it suffered in 2019.

Non-enforcement of compulsory insurances was one of these negative factors as a result premium that would have accrued from buildings and other classes of compulsory insurances did not get to the insurers.

The problem of non-insurance of most government assets continued and stood as a loss for the industry.

Due to the insecurity situation, claims experience of most insurers failed to match their premium generation.

The overall effect was that most firms failed to grow their top line while realisation of the industry’s tall dream of metamorphosing to a trillion naira market remained a mirage.

With a total gross premium of the industry still hanging below N500 billion mark, much below the N1 trillion mark which the industry started pursuing since 2009, operators alluded to the fact that their performance during the year under review was below optimal potential.

The image problem of the sector persisted during the year as operators rested the insurance rebranding project.

The industry within the year still grappled with the challenge of high speed of technological changes demography, and consumer needs and expectations
Experts such as the PWC observed that developments in the business environment during the year continued to disrupt the industry traditional way of doing business and continued to put severe strain on traditional business models.

On the positive side, insurers during the year, for the first time after many years got their group life insurance premium fully paid by government.

Indeed, government in 2020 paid a total of N15 billion to the industry for Group Life Insurance of its work force.

This was disclosed by the Nigerian Council of Registered Insurance Brokers (NCRIB) Vice President, Mr. Tunde Oguntade.

Government had in 2020 appropriation bill, proposed N15 billion for payment of group life insurance of its employees.

Oguntade, confirmed that the insurers received the N15 billion premium on group life insurance of government workers.

Section 4 (5), of the Pension Reform Act, 2014 states that, “every employer shall maintain a group life insurance policy in favour of each employee for a minimum of three times the annual total emolument of the employee and premium shall be paid not later than the date of commencement of the cover.”

Still on the positive side, the Nigerian insurers for the first time during the year gained government recognition on account of the N11 billion life insurance cover they provided for frontline health workers.

They received commendation from President Muhammadu Buhari on account of this.

The industry operators, during the year continued to pursue their self-given target of enhancing insurance penetration in the country.

Suffice it to say that as challenging as the year 2020 was, it prepared the minds of insurers to plan for future occurrences and emerging risks.