2017 challenges offer opportunities for year 2018
Amidst other sectors in the Nigerian economy – banking and finance, energy, manufacturing, aviation or agriculture, the insurance industry had its share of the effects from the recession.
The development prompted some industry watchers to insist that President Muhammadu Buhari must reshuffle his cabinet urgently, in order to revamp the economy and achieve set targets for the new financial year.
Speaking on the expectations for 2018, the Managing Director/CEO, Mutual Benefits Assurance Plc, 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 next generation.” Another analyst, who spoke to The Guardian on the condition of anonymity over the weekend, said Nigeria’s performance remained dismal and unacceptably bad especially when compared to the size of the economy, as there are enormous opportunities.
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), Shola Tinubu, 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.
The Managing Director, Anchor Insurance Company, Ademayowa Adeduro, who also spoke with The Guardian, encouraged all Nigerians to embrace insurance, saying, “it is the best product I can ever sell to anybody now.” However, insurance shareholders across the country are unhappy that their companies have not paid them dividend for years.
The National Chairman, Progressive Shareholders Association of Nigeria (PSAN), Boniface Okezie, who also spoke on the development noted that low level of insurance penetration in Nigeria and its contribution to the GDP is responsible for the below par value at which most of the listed insurance stocks are being sold on the Nigeria Stock Exchange (NSE).
The insurance sector plays a key role in the development of a nation by transferring risks from businesses and individuals. In many countries, the industry actively plays a leading role in the stability and efficient diversification of risks, thus contributing immensely to economic development. However, in the case of Nigeria, the sector plays a passive role in economic development despite its huge potential that remain largely untapped. The current economic crisis occasioned by high inflation and low disposable income have significantly impacted the performance of insurance with most individuals and corporate organisations sacrificing their insurance budget to meet more pressing needs.
This made insurers to set up a committee to rebrand industry to counter the negative perception of the insuring public about insurance business in Nigeria, the Insurers’ Committee has set up a committee to rebrand the industry to identify the benefits and advantages of insurance. The Insurers’ Committee – a baby of the National Insurance Commission and chief executive officers of all underwriting companies in the industry – at their fourth meeting in Lagos, said the aim of the rebranding is principally to work on strategies to change the mindset of Nigerians about the business of insurance, and to educate the insuring public on the benefits and advantages of taking insurance to mitigate risks. Nigeria Re in one of its reports, said the insurance industry had largely remained underpenetrated, with insurance density (insurance premium as a percentage of the gross domestic product, GDP) at 0.225 per cent. Specifically, the coverage level for insurance services is very low in Nigeria, with approximately 1.5 million policyholders out of over 170 million people patronising insurance products.
Similarly, the retail segment has witnessed increasing terminations of insurance policy, and insurance companies had to adopt robust risk management frameworks and deploy cost optimisation measures to ensure obligations to customers are met. About 30 per cent of insurance firms have not yet presented their 2015 financial records, just as about 95 per cent of the companies recorded losses and unable to pay dividends to their shareholders. The late implementation of the Federal Government’s budget compounded Nigeria’s economic woes. First, the missing of the original copy of the Appropriation Bill presented by President Muhammadu Buhari, and secondly, the padding imbroglio, all contributed to the delay government’s spending, and consequently hindered the ability of the Ministries, Departments and Agencies (MDAs), to engage in renewals and payment of new insurance policies. Due to the economic crisis, many insurance firms increased the targets for their marketing departments’ with some threatening not to pay salaries if they failed to meet their targets. Furthermore, the Contributory Pension Scheme (CPS), which had grown into trillions of naira over the years, slowed down recently following the inability of many employers to keep up the pace of contributions to their workers’ Retirement Savings Accounts (RSA).
Besides, NAICOM tried to instil good corporate governance among the operators. With the assistance of the Economic and Financial Crimes Commission (EFCC), the Commission recovered over N66million stolen by unnamed former Chairman of an undisclosed insurance firm. It is also tried to recover the value for shares fraudulently acquired by some company directors without payments.
Also, the issue of capital inadequacy remained a militating factor against insurance firms’ capacity to independently handle or underwrite big accounts in the oil and gas, aviation, marine and other high risk sectors of the economy like their contemporaries in the developed countries of the world.
The Minister of Finance, Kemi Adeosun, had earlier in 2017, 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 N300billion each. The top three insurers have capital of between N14billion to N25billion.
“Increased capital will provide funding for publicity and product development. It will raise the clout of insurance companies in policy formulation and will enhance our capacity to hire the best people and deploy the technology and marketing, product awareness and investment needed to support the industry.”
Going forward, FBNInsurance told The Guardian that “The expansionary budget of N7.2trillion by the Federal Government in 2017 offers significant hope for the insurance industry if duly implemented. The budget includes a capital expenditure of N2.24trillion representing 30.69 per cent. This presents insurance opportunities for group life of contractors and employees, and insurances for all various projects and assets to be executed.”
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