Amidst quest for rapid growth and expansion of the insurance sub-sector for meaningful contributions to the Gross Domestic Product, the Chairman, Nigeria Insurers Association ( NIA), Mr. Eddie Efekoha, has said that certain factors leading to poor performance of the national economy are inimical to the achievement of this desire.
Efekoha, who made this observation at a recent insurance professional forum, held in Abeokuta, Ogun State,noted that the growth of a particular sector in any given economy is directly related to the performance of the economy of that country.
He observed that in the case of Nigeria, shortly before the end of the former President Goodluck Jonathan’s administration, the Nigerian GDP was rebased and the country then was said to have the largest economy of over $500 billion.
He however observed that with the current GDP of Nigeria put at $296 billion, by the Bloomberg, the country has lost its first position to become the second largest economy in Africa after two years at the top.
He highlighted factors negatively affecting the economy and inhibiting the expansion of the insurance industry in particular as terrorism, insecurity and kidnapping amongst other social maladies.
According to him, with the Boko Haram terrorist group ravaging the North-East, the militants in the South-South vandalising oil and gas facilities, this has affected the economic growth thereby reducing national income, power generation and leading to budget deficit.
He said the aggregation of all these has impacted the insurance sector adversely and has stunted its growth.
He also said the devaluation of Naira and its effect on insurance stock price and capital base was another factor noting that the industry’s ability to underwrite is a function of its financial strength which in turn is a function of the prevailing economic realities.
He matched the industry’s capital base in relation to its dollar equivalent between 2015 and 2016 financial year saying the weak Naira has reduced the industry’s ability to handle certain businesses.
According to his statistics, in 2015, the N2billion minimum capital base for life underwriting firms had its dollar equivalent as S10,050,251.26 whereas in 2016, it has come down to $6,451,612.90.
Non life insurance minimum capital of N3 billion, in 2015 had its dollar equivalent as $15,075,376.88 whereas in 2016, it came down to $9,677,419.35. Composite insurance firms with N 5billion minimum capita in 2015, has its dollar equivalent as $25,125,628.14 , this drastically reduced to $16,129,032.26 dollar capital in 2016. While Reinsurance firms with N10billion minimum capital in 2015, has its dollar equivalent as $50,251,256.28 but came down to $32,255,064.52 in 2016.
This obviously has put local underwriting firm at disadvantaged position when it comes to underwriting dollar denominated accounts and other businesses that require foreign technical assistance.
Efekoha, highlighted other disturbing issues in the economy as slump in the global price of crude oil and crude oil over-supply,scarcity of petroleum products,weakening of the country’s external reserves position, rationing of forex amongst eligible applicants, poverty/reduction in consumer purchasing power,inconsistent economic policies and volatile capital market among others.
He said for insurance market in particular,technology would continue to be vital element of business growth and expansion, noting that the inability of insurers to become digitally responsive and provide clients with quick, efficient and prompt services has in the past years made the industry to lag behind.
He however said this challenge cannot be beyond the control of the industry, if only it can embrace technology to drive growth.
Speaking on the impact of education and cultural beliefs on the industry’s growth, Efekoha, said that perception of the insuring populace is low due to cultural and educational knowledge.
However, he observed that over times, there has been increased knowledge of insurance products and benefits which will drive change in buying pattern.
He noted that the industry’s expansion is only possible through awareness and patronage of insurance products.
Other contemporary challenges which he observed to have been restricting business expansion of the industry include.
Dearth of skill, as he observed that increase in premium flight can be attributed to lack of skill in the industry to underwrite special risks.
• “This implies that capital may be adequate but the inability to professionally assess risk has resulted in many insurance companies placing aviation, oil and gas and other special risks in the foreign market. This can also be the reason for poor innovation in the industry”, he sated.