Insurance firms for sale

Buyers are seriously wanted in the insurance industry, to purchase companies that are considered to be on the shelf and distressed by the Federal Government. Chuks Udo Okonta, in this report examines the prospects of the industry and the impact on reduction of the numbers of operators.

We have so many insurance companies that are just on the shelf and distressed, but it is either we liquidate them or get some serious people to take them over; those were the words of the Minister of State for Finance, Dr. Yerima Ngama, as he spoke on the need to reposition the industry.

The need to reposition the industry has become necessary as their contribution to the nation’s Gross Domestic Product (GDP) over the years has remained abysmally low.

Insurance premium income represent about one per cent of the country’s GDP, and 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, two reinsurance companies and 66 loss adjusters.

 

In spite the large number of operators in the industry, research shows that the lack of awareness and public enlightenment on the benefits of insurance remain major factors hindering the growth of the sector.

Recent survey reveals that nine in 10 Nigerians (86 percent) do not have any form of insurance cover while vehicle/car insurance (63 percent) is the most commonly purchased insurance cover compared to a much smaller 20 per cent of the population that had life assurance.

Of the 86 percent who do not have any form of insurance cover, nine per cent of them do not trust insurance service providers, the research firm said.

The research which sought to review the insurance culture in Nigeria also identified cultural and religious factors as essential factors leading to the slow growth of the insurance sector.

Previous studies have shown that low awareness and lack of knowledge about insurance products characterised people’s opinions about the insurance sector.

The recent poll however indicated that despite the poor insurance culture, there are huge potentials for insurance companies and practitioners, particularly in the area of designing new products that will be attractive to youths across the country.

 “It is imperative to note that only nine percent stated that they do not trust insurance companies, compared to some decades ago when insurance practitioners were considered fraudulent for use of hidden clauses and non-payment of claims,” it was learnt.

Amidst these challenges, the Federal Government believes the number of insurance companies have to be reduced to pave way for mega institutions.

To enforce this belief, NAICOM has been enjoined to stop the issuance of new licences to investors in the insurance sector. And possibly help sell companies that are just on the shelf and unproductive.

Ngama lamented that insurance penetration was low in the country because of the rigidity of the system.

Minister of Finance, Dr. Ngozi Okonjo-Iweala, said the Federal Government was expecting the insurance industry to support the economy.

This, she said, led to the constitution of a strong board that was expected to add value to the economy.

Okonjo-Iweala said, “We expect the insurance companies to be strong enough to be able to ensure that they can handle the expanding business in the economy. Be it in the oil sector, shipping, aviation and all those other industries that usually go offshore. And for that, you need a strong regulator and a board to oversee this.

“So, we expect that the new board members will produce results, both financial and value added to the economy.”

In recent time, Private equity firms, both local and foreign, are now tapping into the nation’s insurance industry with a view to taking major stakes in the business.

At the last count no fewer than six private equity firms mostly from South Africa have taken key positions in the Nigerian market, and are gradually bringing to bear their experience and skills in the respective organisations where they have invested.

Latest arrivals on the scene are Asset and Resources Management (ARM) Limited with funds under management in excess of $2.7 billion about N436 billion, which recently bought a 52.2 percent equity stake in Crystalife Assurance plc, now called ARM Life; and Old Mutual of South Africa with $15 billion under management, which recently acquired Oceanic Insurance now called Old Mutual Nigeria.

Before now, we have had the likes of Sanlam of South Africa partnering FBN Life Assurance Limited, a member of FBN Holdings; NSIA Participation South Africa buying 96.15 per cent in ADIC Insurance Limited; Alternative Capital buying majority stake in Law Union and Rock Insurance plc; Capital Alliance for Cornerstone Insurance plc while Metropolitan Life also of South Africa partnering UBA Life Insurance to become UBA Metropolitan Life.

The firms whose track record and pedigrees in financial services sector from within and outside Nigeria, analysts say, would bring key innovations in product development and distribution that would trigger insurance growth especially in the retail arm of the business.

“There is going to be a major transformation that would not only push up growth and quality of service delivery but also increase market penetration,” says an analyst.

Owolabi Salami, chief responsibility officer, ARM Life commenting on the new development said that a major change is imminent in the Nigerian insurance industry.

“In a short while, you will begin to see funding, skills, technology, products, people, professionalism and innovations play critical role in shaping the industry. And I see retail business being the major beneficiary and that would mean a lot of penetration for our industry,” Salami stated.

Ganiyu Musa, group managing director, Cornerstone Insurance plc said “this is a healthy development for our market because we need to increase penetration as much as possible.”