By Ebere Nwoji
A former Minister of National Planning and Finance, Shamsudeen Usman, has stated the need for insurance operators in the country to be forward looking and to work towards growing the size of the industry to ensure its meaningful contribution to the gross domestic product (GDP) of the economy.
Shamsudeen, who stated this while addressing insurance operators at an insurance forum in Lagos recently, said the small size of the industry had hindered it from playing the role of a stabiliser in economic crisis.
Citing reports from Agusto and Co, he said the balance sheet of all insurance companies is less than one third of one of the banks.
According to him, there are certain characteristics of the insurance industry that actually makes it more of a stabiliser especially in terms of economic crises like we are going through in the country.
He stated that the ability of the sector obviously to play that stabilising role depends on the size relative to the rest of the economy.
He said: “Part of the reasons the Nigeria insurance industry has not played the stabilising role is about the size of the industry. The balance sheet of all insurance companies is less than one third of one of the banks. This tells the issue of the size. I was a deputy governor in the central bank when the consolidation exercise happened with credit to a former Central bank Governor, Charles Soludo.
“We went into a room and he made a presentation to the banking industry. Initially there was a lot of opposition. I remember when we were appointed to the central bank in 1999, there were 907 banks. The total balance sheet of the 907 banks was less than one of the banks today. A 100 per cent of 1 is 1. 10 per cent of 1000 is 100. So do you prefer a 100 per cent of a tiny little thing or 10 per cent of a big thing which can be 10 times the value of whatever you are getting?
“I believe that the insurance industry itself has to be more forward looking into consolidation like it happened in the banking sector. Yes, many of you are afraid to lose your position of managing director, executive director of a small corner. But I think the industry will achieve more if you can come together and get bigger.”
The former minister however said that the industry has huge potential that it is yet untapped.
“The potential even from the point of view of the economic theory is that there is a strong link between the growth of an economy and the growth of the insurance industry. This has been a subject of many as even the empirical studies in other countries partly because of the role again that the industry plays in economic growth and stability through improving the investment climate and promoting more efficient volume and mix of activities. A number of research has shown that there is a positive closer relationship between the industry and the wider economy.”
The former finance minister’s advice to insurers was coming on the heels of similar statement on the need for fresh consolidation in the industry by the Minister of Finance, Kemi Adeosun, who at the 2016 National Insurance Conference held in Abuja recently, said there was urgent need for recapitalisation of most insurance companies operating in Nigeria.
Adeosun, had said it was necessary to increase the capacity of the industry and create opportunity for partnership and other strategic alliances within the system.
The minister, advised the industry operators not to see recapitalisation as a punitive measure but an opportunity to reposition for the future.
Recapitalisation exercise, was carried out in the industry in 2007 when the minimum capital base of life underwriting firms was increased from N150 million to N2 billion , that of general business underwriting firms was pushed up from N200 million to N3 billion while composite that of composite firms rose from N500million to N5 billion, Reinsurance firms were asked to upgrade their minimum capital to N10 billion.
The minister, advised operates to be ready to take risk since they are in the business to bear risks of others.
She said there is need to address issues responsible for underperformance of the industry adding that she is currently working with the industry regulator, the National Insurance Commission (NAICOM),to address the problem of premium discounting.
“There is need to immediately address the issues responsible for the under-performance because a 0. 33 per cent increase in insurance penetration can result to a growth of 0.5 per cent in GDP”, she sated.