The Partner Audit Services and Insurance Sector, KPMG, Mr. Kabir Okunlola has said that a consolidation exercise for the insurance sector would help increase investor appetite and generally transform the industry.
Okunlola, who made the remark in an interview with THISDAY on Monday, revealed that the federal government was considering measures to revamp the insurance sector.
According to him, transformation was inevitable in the insurance industry. He noted that the underperformance by the sector in the last couple of years cannot continue.
“And for that to happen, you fundamentally need to address some key areas on governance. I’m happy because regulators are looking in the same direction. They have issued what they call 2017 priorities areas,” he said.
Okunola added: “They are looking at governance, cost in the sector and also capitalisation and some other strategic areas to help the sector to consolidate and have the right scale to target the opportunity in the sector.
“The insurance industry continues to be a big centre of attention for both the government and the private sector. The opportunities are very big. However, in terms of play, it has been underperforming and that is why there is a lot of attention from the private sector, from government on what we need to do to move the insurance sector to achieve its potential.
“In other develop market, insurance industries own banks. But in Nigeria, banks used to own insurance companies before banks were asked to divest from the insurance industry.”
He argued that the sector presents a lot of opportunities, despite the fact that it had continued to underperform.
Okunola noted that the sector remains fragmented, saying that there about 56 insurance companies in the country.
“When you look at banks, they are far bigger. We have less numbers of players. The right focus to achieve that depth in the sector hasn’t happened. You still have the top six insurance companies owning and controlling more than 60 per cent of the market and that means the other 50 companies are not doing as much.
“ And if you have a situation where you can consolidate that to have very few and strong players who have the right capitalisation and have the right investment structure and technology, then what you would see is that you would be able to have the right depth in that market.
“And then you can have the right product development and then then focus on consumer needs would be strong to generate the desired growth in that sector,” he added.
Commenting on the adoption of the International Financial Reporting Standards (IFRS) in the sector, the KPMG partner said it would unify the accounting structures thereby making it more attractive to investors.
Okunlola added: “The whole idea of IFRS reporting is that it seeks to harmonise accounting principles by insurance companies to focus on risk management. This would engender confidence in the market as well as also attract investor’s interest in the insurance sector which essentially for the last couple of years has been suboptimal.”
Speaking further about an upcoming conference being organised by his firm, he said it would provide a platform to discuss the implications of the forthcoming Accounting Standards on the Insurance Sector. The event is scheduled to hold on the 28th of February 2017.
Furthermore, he said: “The insurance conference is part of investment of KPMG thought leadership and would help coordinate decision assessment and discussions on the right opportunities and investment in the sector being a priority sector.
“We have brought very good resources both locally and international to talk about the sector and bring the chief executive officers and chief finance officers in the sectors to talk on the transformation of this industry.
“We also going to have discussions around IFRS and help stakeholders know what they need to do to be competitive in this industry.”