As Nigeria celebrates its 63 years independent anniversary, stakeholders in insurance critically examined the sector, concluding that insurance in Nigeria is still at infancy, Ebere Nwoji reports.
The Nigerian Insurance sector after 63 years of independence is said to have remained at infancy stage in terms of growth and development, with operators still preaching their usual gospel on the need for both government and the people to embrace insurance as a way of mitigating risks.
Nigeria is said to be the largest economy in Africa; however, in South Africa, life insurance alone accounts for 81 per cent of all insurance premiums in the country. Also, other African countries like Namibia, Mauritius and Botswana have their life insurance well developed likewise their general insurance.
The World Bank collection of development indicators compiled from officially recognised sources in 2020, said in South Africa, insurance assets contributions to the GDP was 60.14 per cent.
In Namibia, the report put insurance contributions to the GDP of the country at 38.42 per cent while in Botswana, the same report put insurance contributions to GDP at 10.55 per cent.
In Nigeria, the National Bureau of Statistics (NBC) in its Q1, 2023 report put the insurance sector contribution to the National GDP at 5.35 per cent.
State of insurance sector
While some sectors of the economy have recorded significant achievements since Nigeria became a sovereign nation, the insurance sector lags behind. Operators have continued to lament the dearth of knowledge and value of insurance, insisting that government at all levels pay lip service to insurance patronage, while the people see no value for insurance.
The operators noted that although in their day to day living, risks that insurance would have mitigated surround Nigerians and despite efforts by insurers to prove that insurance is real and insurance claims payment realistic, many Nigerians still hold their false belief that insurance operators are fraudulent people and as such resolved to carry their risks.
At a recent forum of the organised private sector (OPS), the Commissioner for Insurance, Mr. Sunday Olorundare Thomas, told Nigerians that there was no economy that could attain financial stability without insurance.
Also, experts who converged at the 2023 edition of the Insurance Stakeholders’ Consultative Forum, with the theme, ”Rethinking Insurance as a Critical Economic Growth Strategy,” organised by the Lagos Chamber of Commerce and Industry (LCCI), urged the government, businesses and individuals in Nigeria to embrace insurance as a hedge against risk.
They also said the major challenges of the sector could be attributed to poor knowledge of the advantages of accepting insurance products to mitigate risks.
They were concerned that Nigerians are so averse to insurance that even the five compulsory insurances made by law are not working as very few Nigerians patronise them.
The experts lamented that although insurance of public building and building under construction were among the compulsory insurances stipulated by the insurance Act 2003, only about 5,000 public buildings have so far been insured across the country, “which is very insignificant compared to several public buildings in the country. Yet cases of collapsed buildings, including public buildings abound in the country.”
Experts’ reaction
Against this backdrop, President of LCCI, who is also former President of the Nigerian Council of Registered Insurance Brokers, Dr Michael Olawale-Cole, looking at the whole scenario concluded that the Nigerian insurance industry, despite its huge potential, was at its infancy stage and far behind its African peers, judging by key growth indicators.
He said that the insurance industry played a substantial role in the Nigerian economy through several transmission points, including mobilising domestic savings, facilitating the conversion of accumulated capital into productive investments, minimising risks, fostering financial stability and stimulating trade.
He complained that the huge expansion seen in the financial services sector over the last decade had not been replicated in the insurance industry.
Citing the global insurance market report, Olawale-Cole, said the insurance penetration rate in Nigeria was 0.5 per cent while that of South Africa was 12.2 per cent.
“Without doubt, the insurance sector has a potential for development due to various alterations in the regulatory framework, necessitating future modifications in the operational practices,” he said.
He said the future of the sector hinges on the extent and speed of digital transformation since it has the potential to enable the industry participants to secure a significant market share.
Corroborating the LCCI’s view, the Commissioner for Insurance Sunday Thomas, stressed the need to educate the public on the need for insurance.
Thomas, who attributed the need for insurance to the development of the economy, said the sector was very important for the government, businesses, the economy and individuals.
“When you are talking about preserving existing assets, insurance comes to the fore; on the relationship with the outer world and sustaining confidence in foreign direct investment (FDI), it comes to the limelight. It has become important that without insurance, planning cannot be sustained,” he said.
Speaking also at the programme, the Chairman of the Insurance Group of the LCCI, Gboyega Olanbiwoninu, urged insurance operators to rethink, re-engineer and remodel the way insurance products are marketed to Nigerians.
Operators’ efforts
In their bid to overcome the problem, the operators have found solace in collaboration tactics among themselves in order to work for one single purpose and in embracing digitalisation in insurance distribution.
The various arms of the industry, namely; the Nigeria Insurers Association (NIA), the Nigerian Council of Registered Insurance brokers. (NCRIB); the Chartered Insurance Institute of Nigeria (CIIN), the Institute of Loss Adjusters of Nigeria (ILAN) and Association of Insurance Agents (ARIAN) have agreed to work together to create awareness
This mass unawareness problem and the attendant low patronage of the industry by the masses has become worrisome to the operators compelling them to embark on series of insurance awareness campaigns in order to popularise insurance and attract patronage to the industry.
Industry observers said at this stage of insurance practice in Nigeria, the operators have no choice than what they are currently doing because although the industry is older than Nigerian independence, having been in operation for over a century, its level of acceptance, stage of development compared to its sister sector, the banking industry, was not satisfactory; although it had in recent years begun to record some notable achievements that are gradually lifting its status among other sub sectors of finance services industry.
Changes and achievements
Meanwhile, despite the many challenges, the industry over the years has recorded some achievements.
Through critical study of the sector, THISDAY notes that prominent and most current among positive changes recorded by the industry is the effort by the regulator to address the low operating capital syndrome which has been impoverishing the industry as most of the big businesses that supposed to shoot up the annual premium income and profit of the industry go to foreign insurers due to lack of financial capacity by indigenous insurers.
At present, the industry operates on cash basis and is well positioned to pay claims and handle big accounts. But even at that; the regulator is still pushing for higher capital through its Risk Base Operating capital model.
Closely connected to this is the problem of activities of fake insurance operators, especially motor and marine insurance operators, which have for many years drained the industry’s vault.
However, the industry has been able to address this through its insurance industry database platform set up by the Nigerian Insurers Association. The regulator has also successfully reviewed upwards the premium rate for Motor Third Party Insurance after over 20 years of stagnancy at N5000.It has also reviewed the claims rate.
The development of micro insurance, which the industry is still experimenting on now is another milestone recorded by the industry in recent years.
Also the industry operators and the regulator have not given up on the consolidated insurance bill, which holds a lot for the industry. Although the Muhammadu Buhari’s administration despite all promises failed to assent to the bill, the operators have presented the bill afresh to the present lawmakers.
The bill when passed into law is expected to fill many gaps left by the insurance act 2003, which is another important achievement. Total digitalisation of operations of the industry is another milestone achieved in the industry.
In conclusion, it is not an overstatement to say that after many years of Nigeria’s independence and the exit of British insurance managers from Nigeria, while other sub-sectors of the economy were recording success and growth, the insurance industry, remained a toddler for several years mainly due to unawareness problem, lack of trust, low capital base and low disposable income of the masses.
