OVERVIEW OF THE INSURANCE SECTOR IN 2013" BEING A PAPER PRESENTED BY MR. TUNDE LEMO, DEPUTY GOVERNOR, CBN AT THE 2013 INSURANCE PROFESSIONALS FORUM OF THE CHARTERED INSURANCE INSTITUTE OF NIGERIA

OVERVIEW OF THE INSURANCE SECTOR IN 2013" BEING A PAPER PRESENTED BY MR. TUNDE LEMO, DEPUTY GOVERNOR, CBN AT THE 2013 INSURANCE PROFESSIONALS FORUM OF THE CHARTERED INSURANCE INSTITUTE OF NIGERIA HELD AT THE PREMIER HOTEL, IBADAN - SEPTEMBER 4-7, 2013

The Commissioner for Insurance

The Chief Executive Officers of Insurance Companies, Brokers and Lost Adjusters

The Director-General of the Chartered Insurance Institute of Nigeria

Members of the Insurance Community

Distinguished Ladies and Gentlemen

Preamble

I am highly honoured by this singular privilege to present a paper on the ‘overview of the insurance sector in 2013’ before this distinguished audience of insurance professionals. I also wish to seize this opportunity to congratulate the Chartered Insurance Institute of Nigeria for organizing the forum as a means of ensuring continued professional education of its members as well as keep them updated with developments in the sector. Education and the regular sharing of experiences, which this forum provides is the bedrock of any professional Institute. It determines the level of competence and the ability of the professional to continuously add value to clients’ businesses.

2. Although the topic provided by the organisers of this occasion is ‘an overview of the insurance sector in 2013’, it is imperative to give a brief historical background of the sector in order to appreciate the developments that have taken place and on-going in 2013. This paper is therefore structured into five parts. The first part of the paper briefly looked at the historical perspective of insurance business in Nigeria. The second part dealt with the institutional framework and arrangements in the sector while the third part of the paper examined some of the important reforms and initiatives that have been put in place over time. The fourth and fifth sections of the paper discuss the challenges confronting the sector and way forward for the sector respectively.

Brief Historical Background

3. The Nigeria insurance industry started in 1921. The first major step at regulating the activities of insurance business in Nigeria was as a result of the fallout of the report of J.C. Obande Commission of 1961, which resulted in the establishment of the Department of Insurance in the Federal Ministry of Trade. The Department was later transferred to the Ministry of Finance. The report also led to the enactment of the Insurance Companies Act of 1961, which came into effect on May 4, 1967.

Institutional Framework

4. As you are all aware the insurance business in Nigeria is regulated by two main Acts and supervised by the National Insurance Commission (NAICOM). The Insurance Act No. 1 of 2003 (1A) governs the licensing and the operation of insurers, reinsurers, intermediaries and other providers of related services. The second Act which is an omnibus one - the Companies and Allied Matters Act (CAMA) 1990 governs all companies, except those that have their respective enabling Acts such as the National Insurance Corporation of Nigeria (NICON) and the Nigeria Reinsurance Corporation. The National Insurance Commission Decree No. 1 of 1997 (NA) established NAICOM and vested with the responsibilities of ensuring the effective administration, supervision, regulation and control of insurance business in Nigeria and protection of insurance policyholders, beneficiaries and third parties to insurance contracts.

5. I am delighted by the impressive growth witnessed by the insurance sector over the years. Insurance premium income, though represent about 1% of the country’s GDP, has grown from =N=105 billion in 2007 to =N=300 billion in 2013. The industry total assets have rose steadily to =N=635 billion. The number of operators in the insurance sector has similarly increased remarkably over the period. The insurance sector now has 2,250 insurance agents, 579 insurance brokers, 57 insurance companies, 2 reinsurance companies and 66 loss adjusters.

6. It is also imperative to note that the number of institutions enumerated in the forgoing paragraph were those standing even after the recapitalization exercise embarked upon by NAICOM.

　

Reforms and initiatives

7. NAICOM, the primary regulatory agency in the insurance sector has embarked upon a number of initiatives and reforms all with a view to repositioning the sector. The minimum capital for the relevant players in the sector continued to be raised to eliminate unviable and insolvent insurers. At the moment Non-life companies are required to have a minimum capital of =N=3 billion, Life companies =N=2 billion, composite companies =N=5 billion and Re-insurance companies =N=10 billion. Brokers are however not required to have a minimum capital in view of the fact that they only play an intermediary role.

8. Other reforms embarked upon include the enforcement of compliance with compulsory insurance in line with the Insurance Act 2003, the sanitization and modernization of insurance agency system, wiping out of fake insurance institutions, and introduction of risk-based supervision of institutions under the regulatory purview of the Commission. The implementation of the National Roadmap on the implementation of the International Financial Reporting Standards (IFRS) by insurance companies has also received the attention of the commission.

9. In order to facilitate financial inclusion NAICOM has created avenues to allow micro-insurance, agricultural insurance and Takaful to evolve. The establishment of a complaint Bureau by the commission is with the primary objective of addressing genuine complaints from customers. A code of corporate governance has been in place to strengthen governance in the insurance companies. The commission has also embarked on public enlightenment campaign to educate the general public on insurance. NAICOM has equally strengthened its relationship with other regulators both abroad and within the country through the signing of MoUs and enhanced collaboration in pursuing mutually beneficial interests.

10. The initiatives embarked upon largely aligned with the strategic objectives to be achieved by the insurance sector as articulated in Nigeria vision 2020. These objectives are to ensure insurance credibility and protect policy holders; embarked on risk-based capitalization of insurance companies; embed the governance and risk management framework for the insurance companies and to diversify and integrate insurance products into financial services for long term financing. In order to achieve the foregoing objectives it was envisaged that there will be increased financial literacy and awareness, human capital development and attraction of expertise, integrated and linked IT systems, improved legal and regulatory framework.

11. The CBN initiative of the Nigerian Incentive Based Risk Management System for Agricultural Lending (NIRSAL) provides opportunities for the insurance companies. NIRSAL is a dynamic, holistic approach that tackles both agricultural value chain and the agricultural financing of value chain. NIRSAL is built on five pillars namely; risk sharing facilities, insurance facilities, technical facilities, holistic bank rating merchants and bank incentives mechanism.

12. The primary goal of the insurance facilities is to expand insurance product for agricultural lending from the current coverage to new products such as weather index insurance, new variants of pest and diseases insurance. The sum of USD 30 million will be invested by the CBN.

Challenges

13. The envisaged objectives in the insurance sector and the efforts of the reforms and initiatives in the sector are impeded by a number of challenges. One of the major challenges confronting the sector is the very low level of insurance penetration and patronage. Non-life insurance penetration is around one-half percent or only one-seventh of the average penetration of the OECD countries in 2010. Life insurance penetration is even lower at around 0.2 percent. The comparison remain the same when a better measurement of insurance utilization is used, which takes into consideration dependence on the economic development of the country as well as the benchmark insurance penetration against the world insurance penetration average (BMIP) for the non-life sector. The Nigerian BMIP value indicates that the insurance industry is underdeveloped with only 43 percent of the world average insurance penetration at the Nigerian 2010 GDP per capital level, placing Nigeria at the bottom of comparable countries, with the exception of Egypt as can be seen from the table below.

Table: Nigeria: Non-Life Insurance Development Metrics in 2010

COUNTRIES NON-LIFE INSURANCE PENETRATION PENETRATION AS A % OF OECD AVERAGE PENETRATION BMIP Angola 0.91 27% 58.99 Egypt 0.39 12% 30.18 Ghana 0.56 17% 47.75 Kenya 1.58 46% 142.75 Morocco 1.62 48% 124.09 Nigeria 0.51 15% 42.88 South Africa 1.87 55% 96.82 Source: IMF- Financial Sector Assessment Programme Documentation

14. The general apathy towards insurance, the unwholesome practices of some insurance practitioners, slow pace of development of industry portal, unattractive remuneration of agents, dearth of adequate manpower and delays in enacting of bills are some of the other challenges confronting the sector.

Way forward

15. There is the urgent need for NAICOM to collaborate with other regulatory and government agencies to step up the enforcement of the areas where there are compulsory insurance. This the Commission can do bilaterally and or multilaterally through the various existing fora.

16. Efforts should be intensified for the take-off of the industry portal. NAICOM should sustain its public education programme, continue to handle customers’ complaints timeously and build capacity in the industry.

17. Distinguished Ladies and Gentlemen, you will agree with me that the insurance industry has come a long way and in order to lift the industry beyond its present level requires the cooperation and commitment of everybody.

Thank you for listening.