There are indications that the Central Bank of Nigeria (CBN) may reconsider its earlier abolishment of Bancassurance especially with the Federal Government renewed interest on getting the insurance sector to contribute meaningfully to the economy.
Bancassurance model is simply the sale of insurance and other similar products through a bank. Experts also explained it as the partnership or relationship between a bank and an insurance company whereby the insurance company uses the bank sales channel to sell insurance products, using the bank’s client base.
The CBN in 2010 stopped banks from undertaking any form of Bancassurance when it directed them to divest interests in any activities not directly linked to core banking activities.
One of the numerous concerns then was that the involvement of the banks in insurance introduced unhealthy practices in the industry and jeopardised corporate governance.
For instance, the former banks’ insurance subsidiaries had more access tofunds, which enabled them to insure banks’ huge assets than those firms that had no link with the banks.
But the CBN’s directive had since then raised calls from stakeholders who believe that the concept would particularly help drive insurance penetration (i.e. the ratio of premiums to GDP) which today stands at only 0.4 percent in Nigeria.
Kolawole Balogun, deputy director in the CBN banking supervision department, signaled that the CBN has revisited the issue and is now looking at the best Bancassurance model that would best suit the Nigerian environment.
He said his department has already reviewed several of those models and made necessary recommendations/suggestions to the higher authorities of CBN for final decisions.
In spite of the investor interest, and huge opportunities in the Africa’s largest economy, the insurance sector still lags behind in many respects especially when benchmarked against other emerging markets.
A top Nigerian bank official said he was in support of the CBN’s plan to revisit Bancassurance to help the insurance sector, but said it would be necessary for the apex bank to re-institute the best model that serves the Nigerian purpose.
Okonjo-Iweala, coordinating minister for the economy and minister of finance, admitted that Nigeria’s current insurance penetration (i.e. the ratio of premiums to GDP) was quite low at only 0.4 percent compared with 1.1 percent in Ghana; 3 percent in Kenya; and for the BRICS (Brazil 4 percent; Russia, 1.3 percent; India 4, percent; China 3, percent; and South Africa, 15 percent).
In terms of assets in the overall financial system, insurance also accounts for only 3 percent of total assets, compared to 12 percent from pension assets and 79 percent from banking assets.
According to her, this is different from other emerging markets such as Brazil and Mexico, where insurance assets account for about 6 percent of total financial assets; and for India where insurance contributes about 14 percent of total financial assets.
But the Nigerian government is now putting energy at pushing the country’s struggling insurance sector to make it more able to deliver to the economy in terms of generating jobs and improving incomes, particularly as dwindling oil prices throw fresh challenges on revenue.
A major target is to grow gross written premiums (GWP) at N300 billion today to N1 trillion in the next three years, and to N5 trillion in ten years, even as enforcement would be stepped up in the sector generally seen as lacking discipline.
Part of government’s new vision for the sector is also to see it deliver more direct from the current 30,000 people to 100,000 people in the next three years and to more than 300,000 people in the next decade.
The third aspect of the vision is to widen access by growing the number of insurance policyholders in the country that has a population of about 170 million people, but with only 3 million policyholders.
Recent reforms have seen Nigerian insurance sector grow, albeit slowly. Total premiums have quadrupled in the past 10 years, growing from N75 billion in 2005 to more than N300 billion today and has attracted strong external interest in the sector with the entry of foreign investors such as Old Mutual and Sanlam from South Africa.
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