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Published On: Mon, May 8th, 2017

Nigeria’s insurance sector overdue for consolidation



Nigeria’s insurance industry is undercapitalized, fragmented and too small to take on large risks, a situation suggesting the imperative of consolidation in the industry. According to a survey report by EY Consulting “Waves of change: revisited 2016” on Nigeria, “Nigeria’s insurance industry is undercapitalized, fragmented and too small to take on large risks.

Also, a June 2015 analysis by NKC African Economics, noted that Nigeria is home to 17 life, 32 non-life and 10 composite insurers, but companies report to the regulatory authority is more compliance than risk focused.”

The report said, recent data from the country’s industry regulator, the National Insurance Commission (NAICOM), shows that more than three million Nigerians today hold some form of insurance, up from fewer than one million in 2007.

Coverage rates vary, however, with higher levels for property and automotive insurance and a low take-up of personal policies such as life or health.

“The government expects premium volumes to triple by 2017. One example of low-hanging fruit; of the seven million vehicles registered in Nigeria, fewer than one million are believed to have adequate insurance. The government hopes that making automotive insurance mandatory will boost the non-life portion of the industry, which already depends on vehicles for more than half its volume.

“Growth prospects are robust – but so are the risks in Nigeria. Oxford Economics projects the insurance market will grow at 10 per cent annually from 2014 to 2018, reaching US$2.6 billion annually in premiums, up from US$1.8 billion last year. Density per capita is projected to rise to US$13.20 in 2018 from US$10.00 in 2014.”

The report said “Respondents to our survey expect product innovation and rising consumer demand, rather than overall economic growth, to be the principal driver of growth. Some 33 per cent of Nigeria respondents cited product innovation and rising demand as keys to future growth versus 22 per cent of the overall sample.

“Nigerian survey respondents were also more likely to cite affordability of coverage (42 per cent) as a top challenge than overall respondents (27 per cent) and more likely to cite health insurance as a top revenue stream.”

“Clearer policy directives and government regulations are critical to creating lift-off to the insurance industry. As nearly half of the population of Nigeria is Muslim, the potential for takaful operational guidelines necessary to expand in this direction have been established.”

Projection for 2017
Agusto & Co., a pan-African credit rating agency in Nigeria, in its 2017 “Insurance Industry Report” unveiled in Lagos recently, estimated a gross premium income (GPI) growth of eight per cent for the insurance sector this year.

The firm based its projection on a probable devaluation of the nation’s currency, anticipated increase in infrastructure during the year as well as continued growth in life business in the sector. The firm anticipated that profits in the sector would be upheld by increased investment income due to rising interest rates; but moderated by rising claim payments. It pointed out that the industry’s low penetration rate (GPI as percentage of Gross Domestic Product) of 0.4 per cent, presents huge growth opportunities.

The report was in congruent with the opinion of the Federal Government’s resolution to drive reform in the sector in order to unlock its inherent but untapped potential as expressed recently by the Minister of Finance, Mrs. Kemi Adeosun. She had reaffirmed government’s determination in leading the drive to reform the sector and bring about vibrancy that delivers economic growth.

The credit rating firm’s focus on the insurance sector is driven by the conviction that a developed and active insurance market would bring about increase in GDP, accumulation of long-term funds for infrastructural financing, job creation, and an improved standard of living.

Speaking during the unveiling of the report, the firm’s Executive Director, Financial Institutions, Mrs. Yinka Adelekan, noted that the report identified significant threats to the growth of the insurance industry while highlighting the growth opportunities inherent in the sector.

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“As the largest economy in Africa, the Nigerian insurance industry remains largely underdeveloped. The industry has huge and untapped potentials and the 2017 report highlights some of the opportunities untapped” she enthused.

The report stated that evolving risks such as job losses, cyber risk, among others, offered prospects for the development of new insurance products. It also stated that anticipated government spending in construction could support growth in the industry through bonds, group life, workers’ compensation, among others.

According to the report, micro-insurance was also expected to gain traction on the back of a large populace which remains outside the insurance coverage.

In carrying out the research, the firm which has tracked the Nigeria insurance industry since 1996, examined the financial condition of 45 insurance companies.  This comprises 25 non-life insurers, 10 life insurers, 8 composite insurers and 2 reinsurers, operating in the country, with emphasis on various aspects of their financial performance includeing; capital adequacy, profitability, investment management, risk retention and exposure, liquidity and cash flow, as well as staff productivity.

According to the report, in terms of risk underwriting, the insurance industry underwrote risks of over N300 billion in 2015 through motor, oil and gas, general accidents, fire, marine, aviation, life insurance, among others. The firm estimated a 10 per cent growth in GPI in 2016.

Also, in the area of risk indemnification, the report reflected that at about 28 per cent GPI, over N100 billion generated was estimated to have been paid out as claims.

“This has helped businesses and individuals rebuild and recover from losses quickly. In addition, in terms of financial intermediation, it stated that operators in the sector invested over N137 billion of its premium in the banking industry as placements and deposits in 2015 while it estimates about N178 billion has been placed with the banking sector in 2016. The Insurance sector directly employs 6,400 persons and expended an estimated N29 billion in employee related costs in 2016,” it stated.

Analysts at Agusto & Co. pointed out that developments in the economy as a result of the slide in crude oil prices, which resulted to a downturn in government’s earnings and economic activities, also impacted negatively on the sector.

Time to recapitalise

The issue of capital inadequacy has remained a militating factor against insurance firms’ capacity to independently handle or underwrite big accounts in the oil and gas, aviation, marine among other high risks sectors of the economy like their counterparts in developed countries of the world.

Mrs Adeosun had in 2016, said: “The insurance industry needs to recapitalise. Capital levels were last raised in 2007. To take true advantage of the opportunity in the industry, we must recapitalise and reposition. The top three banks have capital in excess of N300 billion each. The top three insurers have capital of between N14 billion and N25 billion.

“Increased capital will provide funding for publicity and product development. It will raise the clout of insurance companies in policy formulation and enhance our capacity to hire the best people and deploy the technology and marketing, product awareness and investment needed to support the industry.”

While the industry awaits the recapitalisation, NAICOM is working hard to instil good corporate governance among the operators. With the assistance of the Economic and Financial Crimes Commission (EFCC), the Commission recovered over N66 million stolen by unnamed former chairman of an undisclosed insurance firm. It is also trying to recover the value for shares fraudulently acquired by some company directors without payments.

Speaking on the way forward, the Managing Director/CEO, Mutual Benefits Assurance Plc, Mr. Segun Omosehin, said: “The task of maintaining a vibrant and disciplined insurance industry rests with the current generation of insurance practitioners.

“Whether at the underwriting or broking end, concerted efforts must be made at every available opportunity to remind ourselves of the onerous responsibilities of bequeathing a healthy industry to the next generation.”

The Managing Director/CEO, Enterprise Trust Insurance Brokers, Paschal Emeka Egerue, recently said Nigeria’s performance remained dismal and unacceptably bad especially when compared to the size of the economy, as there are enormous opportunities.

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He said: “The total premium volume generation for Nigeria is $1.86billion and ranks 58th in the world. Kenya’s total premium volume of $1.52billion ranks her as the 64th in the world. But while insurance penetration in Nigeria is 0.6 per cent of GDP, Kenya’s is 3.4 per cent and is ranked 44th in the world.”

Similarly, The President, Nigerian Council of Registered Insurance Brokers (NCRIB), Kayode Okunoren, said insurance is critical to the global economic market, noting that it should start playing an active role in the nation’s economic development through intensive lobby and policy advocacy.



Nigeria’s Health Insurance Scheme should include HIV treatment – NACA boss

The Director General of the National Agency for the Control of AIDS, NACA, Sani Aliyu, has called for the integration of HIV treatment into the nation’s Health Insurance Scheme, saying it will help increase the number of people that will be placed on treatment.

Mr. Aliyu who spoke at the stakeholders meeting on integrating comprehensive HIV/AIDs services into health insurance in Abuja on Thursday, said that the agency has realized that health insurance, especially community health insurance could be a mechanism that would allow more people to be placed on treatment.

“This would also allow the state governments to contribute as well because we know the budgets are limited, the priorities are great, the needs of our people are great and HIV is only one component of the health sector”, he said

Mr. Aliyu who stated that the cost of treating HIV has restricted so many people from receiving treatment, said including HIV treatment in the scheme would protect patients from hardship.

He said, “There is a need for a scheme that allows you to fund the supply of drugs for People Living With HIV/AIDS.

“For now, it costs about 50,000 to put one HIV patient on treatment. If HIV treatment can be integrated into the health insurance scheme, all an individual will need for treatment of HIV/Aids +TB care is N1700.

He therefore called on the government and NHIS to not only include HIV testing as part of the scheme but also integrate HIV treatment into the scheme.

“What I want in the next one year is for us to have a sustainable mechanism for funding HIV, funds that is not dependent on budget circles, that is not dependent on government having to put in money.

“Our patients with HIV need to be on treatment for life, so we need a long-term solution, not short term”, the NACA boss said.

In his response, the Executive Secretary of the National Health Insurance Scheme, NHIS, Usman Yusuf, said that the agency has agreed to work closely with all health agencies, including NACA

Mr. Yusuf said all the heads of health agencies in the country were working together to make a difference.

“We are working together to ensure qualitative health for the people. Therefore, we will continue to talk to ensure this comes into existence”, he said

He, however, urged individuals to contribute more to the health of others, as the government has done a lot.

“It is shameful we still depend on foreign donors. Government has done a lot, we need to start doing so much for ourselves

“If there’s a large pool of individuals who contribute to fund healthcare, then there will be coverage of gaps” Mr. Yusuf said.

In his goodwill message, the executive secretary of Civil Society For HIV/Aids in Nigeria, Walter Ujwuocha, said that the group would continue to mount pressure to ensure that the right things were done for people living with HIV/Aids in the country.

With over three million, Nigeria has the second highest number of people living with HIV/AIDS in the world.







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