Nigeria's Insurance Sector Predicted to Become Africa's Regional Hub

Thisday

Obinna Chima
With major developments in Nigeria's insurance sector in recent times, as well as strategic partnership entered into by a lot of firms, the industry is gradually positioning itself as the regional hub of Africa.

A report which stated this, noted that although challenges still exist in the industry, a lot of opportunities abound.

The Financial Derivatives Company Limited (FDC) stated this in its latest monthly economic review made available at the weekend.

According to the report, the growth rate of 5.11 per cent the sector recorded from first quarter 2014 to first quarter 2015 can be improved upon given its low penetration rate and huge untapped potentials that abound in the life assurance business.

In order to achieve this, it also advised the regulatory body to continue to grease the wheels of reform and provide the necessary support and direction to enable the industry achieve its full potential. 

"Thus far, implemented reforms to help local insurers grow have paid off. The question at this point is not whether the insurance industry in Nigeria is about to take off, rather it is a question of how much momentum can it gather to fast track its growth and take its position in the global sphere.

"The Nigerian insurance market has been garnering renewed attention of late from both foreign and local investors. While a number of factors have been right for a few years now (e.g. the Nigerian middle class continues to grow, insurance penetration remains low and there is a growing demand for insurance products) enforcement of regulations and capital investments have been barriers to the success of the industry. 

"However, these barriers may be lifting. The new administration is taking a firm stance on enforcement and the industry has recently recorded an influx of fresh capital owing to returns on earlier investments exceeding projections," it stated.

The Nigerian insurance industry has evolved over the years from an industry fraught with financial indiscipline and non-payment on claims to one that is gaining some level of recognition in the financial services sector and the economy at large. 

From the time of indigenisation of the industry in 1976 to the early 2000s, the insurance industry struggled to find stability. Company ownerships oscillated from foreign to local, as Nigerian aspirations to establish the industry were not supported by the appropriate regulations and human and financial capital. Hundreds of companies were opened but few operated reliably and growth in the industry remained flat at best.
In the early 2000s this began to change. The insurance act of 2003 mandated all vehicles have at least a third party insurance policy.

The most significant reform to date came in 2005 when the capital base for insurance companies was reviewed upwards to N2 billion (from N150 million) for life assurance companies and N3 billion (from N200 million) for general insurance businesses. By implication the capital base required for a composite insurance company became N5 billion from N350 million. This shift in required capital base reduced the number of insurance companies from 103 to 49 and also increased the industry‘s capacity to accept and retain risks.

Claims settlement reforms have also gone a long way in restoring public perception about the industry. 

Through NAICOM intervention a total of N1.2 billion claims were settled in 2012. This figure was said to have increased to N2.2 billion in 2013.

"Reforms on reporting standards, which mandated all insurers to migrate to the International Financial Reporting Standard (IFRS), have also resulted in financial discipline amongst insurers. Companies now submit audited results as at when due and defaulters are hit with fines.

"Finally the no premium, no cover law implemented in 2013 has been hailed as a masterstroke as it has improved cash flow positions and the ability of insurers to meet their operational liabilities. Premiums are recognised when paid and not when a policy is sold. This has reduced outstanding premiums in company annual accounts," it added.