2023: Year Insurance Became N1tn Market

In  2009, the insurance industry through its medium term plan of  Market Development and Restructuring Initiative (MDRI), set the target of achieving annual premium income of N1 trillion from  N260 billion with 2012 as its target year. Ebere Nwoji reports that the sector achieved this feat in 2023.

For the Nigerian insurance sector, the  outgoing year 2023 was a year of achievement of its  tall dream of transforming  into N1 trillion  market as well as a year the operators played fully in the global terrain, utilising  technology  in advancement of  businesses. 

 At the on set of the year,  activities and developments in both local and global business environment  made insurers to see the year 2023 as positive business year though  they also saw some  emerging challenges. 

Indeed preview reports  by analysts for the year psyched insurers as marching into the year with positive thinking that the year would be a vibrant one though with a lot of challenges  to contend with.

For Nigerian insurers, their  hopes and aspirations were anchored on the fact that early passage of the year’s budget would  accelerate operations because of new contracts that would be awarded and paid for as well as yields from the huge investments  they made in technology as a result of COVID-19 outbreak.

Also, they were hopeful that the approval early in the year  of N9.24 billion  by federal government for payment of group life insurance of its  workers would  if timely released boost the insurers’ operations.

With these, Nigerian insurers saw the year as that  of upward and forward movement rather than year of stagnation and marking time.

For the global insurers, contrary to the usual trend over the years in which natural catastrophes and climate change constitute key business risks around the world, these risks in the year 2023 dropped  down the rankings of insurers’ risks fears as companies prioritise  cyber incidents, business interruptions, pressing macro economic concerns such as inflation, energy crisis and possible recession as major source of claims in 2023.

In Risk Barometer report, global insurer and risk bearing giant, Allianz named cyber incidents, business interruption and macro economic concerns as the greatest concerns for the second year in succession, with macroeconomic developments such as inflation, financial market volatility,  recession and the impact of the energy crisis the fastest risers in the year’s list.

The report show that Asia-Pacific and African countries reflect a peculiar frame for these regions reflecting the different impact of the  war in Ukraine and its economic and political repercussions.

In its risk ranking for the year, natural catastrophe and climate change dropped  as did pandemic outbreak, as vaccines have brought an end to lockdowns and restrictions. 

Political risks and violence was another new entry in the top 10 global risks whilst shortage of skilled workforce rose to 8.

Also, Deloitte in its report  for insurance industry in 2023 observed that the  road ahead was  dotted with multiple hurdles such as rising inflation, interest rates, and loss costs. It said the threats of recession, climate change, and geopolitical upheaval; and competition from InsurTechs and even noninsurance entities such as e-tailers and manufacturers, made the  year 2023 not to be a time for insurance carriers to be satisfied with the adaptations they’ve had to make.

NAICOM’s Third Party Insurance

Here in Nigeria,  the operators started the year on a good note with the announcement of 200 percent increase on premium for compulsory Motor Third Party Insurance Premium.

However, towards the second quarter of the year NAICOM raised the alarm that the prevailing foreign exchange crisis and inflationary trend in the country have negatively impacted on insurance sector with life insurance segment being the worst hit.

NAICOM however said the insurance sector had in the past eight years witnessed 15 per cent annual growth from N282.9billion in 2015 to N726billion in 2022.

Commissioner for Insurance and Chief Executive Officer of NAICOM, Mr. Sunday Olorundare Thomas, at the 2023 retreat for Insurance Journalists held in Uyo, Akwa Ibom State explained  the negative economic factors affected insurance business, saying that the current level of exchange rate and inflation made assets replacement an issue.

This, according to him, is because with inflation and high exchange rate of dollar to Naira, insurance assets that were foreign exchange dependent was affected as people were not ready to revalue their assets as such in replacing a damaged property, “insurance firms would be under no obligation to pay anything more than the cost of the property and the sum assured.”

Under such circumstance, Thomas said those who were wise, needed to adjust the value of their assets in order to derive maximum benefits, “because when the value was increased, it mean more premium would be paid for claims payment to be higher when the unforeseen occurs.”

According to him: “When we have this less level of exchange rate, assets replacement becomes an issue, and when you get to the position where assets that were acquired at a particular amount, especially assets that are foreign exchange dependent, people are not quick to revalue their assets.”

Developments in the industry

As earlier stated, the industry started the year on a good note with increase of 200 percent in premium charged on motor insurance premium .

NAICOM had late December 2022 announced  200 percent  increase in third party motor insurance from N5000 to N15000, saying it would  take effect from January 1, 2023.This came after over 20 years of non increase in the compulsory Motor Third Party insurance policy.

NAICOM equally raised the claims and cost of insurance on all classes of motor insurance, including motorcycles.

According to NAICOM, Motor Third Party   insurance  premium rate for motorists increased from N5000 to  N15, 000.

The commission also raised claims payable on the policy from N100,000 to  N3million in the event of an accident.

Just as it said  that buyers of comprehensive motor insurance should  not pay less than five per cent of the sum insured or the price of the vehicle after all rebates and discounts.

NAICOM stated this  in a circular dated December 22, 2022, signed by Director, Policy & Regulation, Leonard Akah with the number ‘NAICOM/DPR/CIR/46/2022’, and issued to all insurance companies.

According to the circular, the  highest cost in the new motor insurance premium rates, was N100,000 for commercial truck/general cartage which also attracts  the N5 million claims in the event of any accident.

Motor insurance has always been the highest earner of premium for insurance companies as such the 200 percent increase in the premium payable on this particular policy automatically boosted the overall premium earnings for the entire industry during the year. 

Though at the early stage of the increase, motorists in Nigerian and other stakeholders kicked against the level of increase but  with sensitisation and education of the masses the rate after one year of its experiment has come to stay leading to increase in the industry’s premium generation during the year.

For instance, the  sector  operators in Q3 2023 said  the industry grew its gross premium written for non-life and life businesses to N729.1 billion .

This in comparison with overall performance of the industry in 2022 shows that the industry had at third quarter 2023 overshoot its overall performance in 2022 which was N726 billion. 

With this third quarter performance NAICOM  was optimistic that by the end of 2023, the industry’s total premium would hit the much projected N1 trillion mark which target it set for itself  some years back.

Theses are contained in the third quarter 2023 financial results released by NAICOM recently.

“In 2021 we had gross premium income of N621billion and by 2022 we had N726 billion and by half year of 2023 we had N551 billion. In third quarter 2023 we had N729.1 billion”, the commission said.

The industry’s total assets within the same period also rose to  N2.8 trillion from N2.5 trillion figure of 2022.

Similarly, gross claims and net claims paid by the industry within the same period stood at  N365.5 billion and N259.0 billion respectively.

NAICOM, in an abridged version of the report titled “Nigeria Insurance Market At A Glance – Q3, 2023,” made available to the media, said the  major drivers of the growth during the period under review, for non-life segment were  oil & gas, fire and motor insurance.

According to the commission, Oil & gas contributed 28.9 percent  while fire and motor insurance contributed 23.6 percent and 18.1 percent respectively.

According to the commission, for  life segment, individual life contributed 36.4 percent while group life contributed 34.5 percent.

The industry’s claims ratios during the period under review showed that total claims to total premium was 59.1 percent ratio of claims paid to industry was 70.9 percent ratio of claims paid to non-life was 55.0 percent and ratio of claims paid to life was 94.9 per cent. NAICOM stated that the change in market capitalisation was 1.5 percent quarter on quarter and 19.9 percent year on year translating to total paid up capital of N422.3 billion, total industry capital N848.9 billion and total statutory deposit N26.7 billion.

The Changes in market size, according to NAICOM report, were 4.1 per cent quarter-on -quarter and 23.5 per cent year-on-year broken down thus – industry total size N2.81 trillion total assets – non-life N1.8 trillion billion and total assets – life N1.1 trillion

With this, the  industry was  optimistic of hitting N1 trillion milestone on gross premium at the end of 2023 financial year.

This is premised on a strong performance at the end of third quarter (Q3) 2023, which figures from the National Insurance Commission(NAICOM) show that the industry had at the third quarter overshoot its full year performance in 2022.

Head, Corporate Communications and Market Development at NAICOM, Rasaaq Salami, quoting the Commissioner for Insurance, Sunday Olorunda Thomas during a media briefing shortly after Insurers Committee Meeting held in Lagos, said the industry had done well both in the area of gross premium income and in claims payment in 2023.

Giving the breakdown of the industry performances since 2021 till date, Salami said, “In 2021 we had gross premium income of N621billion and by 2022 we had N726 billion and by half year of 2023 we had N551 billion.

“With third quarter report, we have already exceeded the annual premium of last year 2022 and by the time we close this year, we might be hitting the N1trillion mark and based on that assessment, we think the industry has performed very well, Salami said.

The commission during the year kicked off implementation of IFR17 regulatory model. The commission also for the first time in history mandated the insurers through their umbrella body, the Nigeria Insurers Association to publicly announce for payment of all outstanding claims by every operator that has any outstanding claims to pay to the insuring public.”

Other Achievements

Also during the year, the commission released guidelines for regulatory sound box and Takaful operations. Salami said the move was part of the commission’s strategic objectives to drive innovation of products and services and ensure that operators were  professional in the conduct of their businesses in line with best practices.

The regulation, which became effective on May 1, 2023, seeks to set standards for live trials or demonstrations of new innovative products in the industry.

Also during the year the commission hosted a national insurance conference on implementation of compulsory builders insurance during which it launched the insurance sector 10 year strategic road map and guidance note for the insurance of government assets and liabilities.

The commission also said it has during the year perfected plans to shore up the minimum capital of the industry by reintroducing risk based supervision model of recapitalisation. According to the commission, this will take effect from the year 2024.

Other achievements by the industry during the year include the  sector operators consolidated on efforts to achieve insurance penetration across the country through education and awareness of the public.

NAICOM continued its efforts at achieving financial inclusion in insurance sector through micro insurance scheme and spreading of insurance awareness and education in various regions and states.

Challenges

Despite these achievements, stakeholders in the sector said there are still a good number of factors working against optimum realisation of operators’ dream of achieving mass patronage.

Some of these, the stakeholders said, are hostile economy, trust issues emanating from hidden clauses in insurance policy documents, inadequate access to information, technology issues, weak regulatory frame work as well as lack of skilled personnel as top among the militating factors. They also highlighted lack of awareness on the value of insurance as a key factor.