By Jeph Ade
In Nigeria, the insurance industry is exhibiting signs of resilience and delivering growth driven by pragmatic regulation and reforms aimed to push the market to higher grounds.
The industry that comprises 12 Composite, 13 Life, 27 Non-Life, 3 Reinsurance, 4 Takaful, 7 Microinsurance and 3 Web Aggregators, grew its annual average Gross Premium Income (PMI) by 15 per cent from N282.9bn in 2015 to N726.2bn in 2022. Industry assets also 60.6 per cent from N917.3bn in 2015 to N2.328tn in 2022, all sustained by strong growth in other indices such as claims, capitalization, retention ratios, and more.
The industry regulatory agency, National Insurance Commission (NAICOM) is, in addition, working to open the eyes of the operators to new realities. It is also rebooting the market through reforms to optimise the benefits of the industry to consumers of insurance products and services.
Oddly enough, insurance penetration that measures the percentage of total premiums collected to the country’s Gross Domestic Product (GDP), remains a miserable 0.4 per cent. Insurance density, which gauges the ratio of premiums to population (per capita premium) prints a dispiriting 1.5, to make it all but impossible to assess the exact effect of insurance on economic activity in Nigeria. Experts attribute this to the composition of insurance data in the country, which excludes pension and health insurance data, indices that overlook the wider intangible but important contribution of the industry to any economy.
Growth in the industry seems to be subdued by high inflation, exchange and interest rates, which make asset replacement knotty. According to Analysts, life assurance takes a big hit any time there is high level of inflation in response to the cost of doing business as all the factors from the insurer to the insured need to be readjusted to accommodate the shocks.
Other challenges, such as demand side, supply side, government side, regulatory factors and regulatory framework also complicate issues in such situations.
CherryAfrica gathered that only three million or 1.5 per cent of the country’s estimated 200 million had insurance policies as of the end of 2022, with a loss ratio of 46.1per cent counting from 2015 to 2022 Dr Usman Jankara, Assistant Director, Corporate Strategy and Special Duties says: “The Nigerian Insurance Industry’s loss ratio for 2015 – 2022 has remained within tolerable limits, making the sector relatively one of the most profitable globally.”
Dr Jankara identified some of the major policies and regulatory footwork introduced by the apex regulatory agency over the past 8 years to address the emerging challenges at a recent retreat for business journalists in Uyo, capital of Akwa Ibom state as e-regulation, risk-based supervision, formation of the Insurers’ Bankers Committee, and transition to IFRS.
He also outlined oil and gas local content capacity utilisation, climate or index-based agricultural, technical partnership with Financial System Deepening Africa (FSD), facilitating innovation (BIMA Lab), actuarial capacity development, COVID-19 support to the federal government of Nigeria and improved regulatory tools. NAICOM also said that it promoted regional integration beyond Nigeria with its influence on the formation of the West African Insurance Supervisory Authority (WAISA), improved access and consumer choice, and supported tertiary institutions, among other initiatives.
CherryAfrica further learnt that Government is working to hammer out the guidelines to drive the insurance of government assets. It was further learnt that a conference on compulsory insurance of public buildings is in the pipeline for September 22-24.
According to Jankara, these measures have created abundant opportunities, which insurance practitioners should lap up for growth. One of such is big data analytics. Spurred by the need for quality information to support investment decision making across markets, experts hold the view that data is now the new wealth. It is therefore not surprising that there is this hard focus on data analytics. NAICOM also identifies Artificial Intelligence (AI), internet of things (IoT), claims automation, cyber risks–cyber security requirements, encouraging innovation and insurtech, the insurance equivalent of fintech.
Afrinvest West Africa, however, maintains in its 2023 Insurance Sector Report: “In ranking terms, the Nigerian insurance industry under-performed significantly, contributing a minuscule 0.02 per cent to world premiums.” According to the investment banking firm, “this ranked the Nigerian insurance industry 81st (previously 71st) out of 88 countries profiled by the Swiss Re Institute in 2021. Nevertheless, the growth rate and contribution of the domestic insurance industry to the GDP in 2021 beat prior year performance.”
The National Bureau of Statistics (NBS) also says that the insurance sector expanded 6.2 per cent year on year in 2021, growing faster than the overall economic growth of 3.4 per cent year on year, to put the industry size at ₦267.7bn in real term, representing 0.37 per cent of total GDP compared to 0.36 per cent (or ₦252.0bn) in 2020.
Despite this performance, Afrinvest asserts that the industry output (measured as GDP) was below pre-pandemic levels by 10 per cent indicating an estimated shortfall of ₦29.8bn due to the pandemic-induced strain on businesses and weak insurance penetration in the country.
It adds: “Although the insurance sector recovered in 2021, the substantial number of claims settled in the year, coupled with higher operating expenses constrained the sector’s profitability.
The Nigerian Insurers Association (NIA) further established that more than ₦11.0bn has been paid by insurance companies in settlement of claims associated with losses from the EndSARS protest. As of November 2021, 718 claims had been settled on vandalization, 93 on looting, 113 on theft, and 136 on the loss of cash. This is evident by the sharp uptick of 37.8 per cent y/y to ₦172.9bn in total claims paid in 2021 per Afrinvest’s computation.
Afrinvest says: “In 2022, we expect profit margins to be pressured downward. This is predicated on the deteriorating effect of rising inflation rate (through higher claims particularly in the non-life business) and an increase in HMO policy pricing. Furthermore, we foresee mounting pressure on underwriting margins as the inflationary effect trickles into insurance policy acquisition and maintenance costs thus raising underwriting expenses. Coupled with the rising risk of global recession, we see the insurance sector “Trailing a Rocky Path” to delivering growth over the medium term.”
On recapitalization, Afrinvest submits that instead of introducing risk-based capitalisation at this time, NAICOM should assess the impact of the current recapitalisation programme on the sector, to drive a more balanced strategy. Failure to do this, the firm warns, could keep investors on the side-line, thereby deteriorating investors’ sentiment towards the sector.