By Ebere Nwoji
The insurance sector has been described as the weakest link in the Nigerian economy because of the low capital base of operators.
The Commissioner for Insurance, Mohammed Kari, stated this at a recent seminar organised by the Chartered Insurance Institute of Nigeria (CIIN) in Ibadan, Oyo state.
He noted that the sector that ought to insure critical sectors such as aviation, should not be seen to have capital base, which is even less than that of microfinance banks.
Currently capital base of life insurance firms in Nigeria is N2 billion, that of non -life is N3 billion, composite firms have N5 billion capital while reinsurers have N10 billion capital base.
Kari, expressed disappointment that whereas the Central Bank of Nigeria recently announced plans to increase minimum capital of micro finance banks to N5 billion and mortgage banks N6 billion, recent move by the National Insurance Commission (NAICOM) to do same was rejected by operators.
Lamenting the poor attitude of operators towards the industry recapitalisation, Kari said, “the insurance sector which ought to provide risk cover for other sectors seemed to be losing its ground as parties it should secure are breaking new grounds leaving it behind.”
“We are the weakest link in the Nigerian economy and now we are going to be less capitalised than mortgage guarantee banks with N6 billion and less capitalised than microfinance banks with N5 billion. “How can an insurance company that insures the aviation sector have capital less than that of microfinance banks? We should wake up.
“Some insurance operators argue that capital is not important. If capital has no function, how come banks bought over insurance companies that used to be owned by insurance companies? “Insurance anywhere in the world is the mobiliser of funds and provider of security. You cannot provide security if you don’t have capital.
“How can you approach a microfinance bank of N5 billion and tell them you want to give them protection. What is your capital?”
Referring to what happens in other climes, Kari said: “Check any jurisdiction in the world, insurance companies are more capitalised than banks.
“Insurance companies own virtually all the financial sectors in the world. They fund infrastructure because they have long-term funds to fund long term business. If the insurance industry don’t need capital, why are they the weakest link in the financial sector?”
He pointed out that the current capital base of insurance companies was increased 13 years ago.
“In the last 10 years, microfinance banks’ licence have been reviewed five times. That is how a financial sector operates and to a large extent a responsible operator should do these things without regulatory prompting,” he said.
While speaking on the theme of the seminar which was “Increasing Insurance Penetration through Value Creation,” Kari noted that many Nigerians do not know how insurance works, how to obtain it, or why it should be bought.
According to him, the sector is daily confronted with the challenges of low level of financial literacy, belief
system, poverty, lack of trust (failure of insurance companies to settle claims), adding that the combination of all of these have continued to negatively affect the penetration levels of insurance.