Holistic approach to lifting insurance industry

Oladele Ayeleso, Lagos

Yakubu Gowon, Chairman, IGIIt is a known fact that the importance of insurance to any nation’s economy cannot be undermined. Experts are of the opinion that no country can experience a meaningful development without the presence of formidable insurance industry, thereby making insurance business in any nation indispensable irrespective of its quota to the Gross Domestic Product (GDP) or its level of awareness among the populace.

No wonder the Federal Government of Nigeria, in its bid to grow its economy beamed its search light on Nigeria insurance sector and mandated it to shore up its capital base to a minimum of N2 billion, N3 billion and N10 billion for life, general and re-insurance business respectively shortly after the conclusion of the consolidation exercise in the banking industry.

Since the conclusion of the exercise, operators have not rested on their oars. They have been working assiduously to make sure that the industry live up to the standard thereby changing the face of insurance business in Nigeria. Now, it is no more news that insurance stock on the floor of Nigerian Stock Exchange ranks among the fastest growing stock as part of the recent development in the industry.

Aside the fact that it seems as if the operators are trying their possible best to work beyond their limitations, putting off their old differences, they seem to have understood that an informed and knowledge-based board is bound to impact positively on the operations of any insurance company that would succeed post-consolidation.

They are also coming to a logical conclusion that a three or five billion naira capital based company must be pro-active in product development to meet the needs of the teaming Nigerian population and the expectations of investors.

In today’s Nigerian insurance industry, despite the fact that it was the government that initiated the consolidation programme, it is worthy to note that not only did the operators lately embraced the idea, but investigation revealed that there are some insurance companies that are well capitalised up to the tune of N15 billion as against the mandatory N5 billion, and there is no company with less than N4 billion capital base.
One other great feat the sector attained, according to Chief Dipo Bailey, former Commissioner for Insurance was the emergence of Mr. Fola Daniel as the Commissioner for Insurance. Mr. Daniel, who came on board while the consolidation exercise that lasted more than it was scheduled was about hitting rock has demonstrated competence and high level of professionalism.

Of all business that exist in Nigerian today, experts are of the opinion that there is none that has as much prospect and potentials for growth than the insurance industry. Reason, according to them is that the population is less than five per cent insured; all existing property at the Federal, state and local government are less than 10 per cent insured; household items have insignificant proportion of insurance as at today.

Available statistics also show that about 71 per cent of the vehicles on Nigeria roads are uninsured while the local content policy in the oil and gas sector is grossly under tapped.

One of the initial shortcoming of the sector was that their ownership was not broad based and hence they had very limited capital. This accounted for their inability to meet obligations through prompt settlement of verified claims. Due to lack of resources, they remained largely un-innovative as demonstrated by the few products they offered at the time.

For instance, a review of the industry’s performance as reported by the Financial System Strategy (FSS) 2020 showed that its contribution to GDP was 0.32 per cent with N76.32bn ($587.0m) premium income in 2005 (pre-consolidation). It ranked number 65 position in World Insurance ranking and it was number six out of eight leading insurance markets in Africa as at then.

The performance of the country’s insurance industry when compared with other developing countries was indeed sad given that these countries are also in the league of developing countries as Nigeria. Some steps taken by both the regulatory authority and insurance operators are geared towrds redressing this unacceptable rating.

One of the major reasons adduced for the little interest in insurance in Nigeria is low literacy level and lack of awareness. From all indications, however, the Nigerian population is getting very enlightened with many public and private institutions undertaking degree awarding courses in the subject. It will, therefore, be incorrect to blame low insurance penetration among the Nigerian populace just on illiteracy.

Religion was also fronted as a militating factor in insurance acceptance, especially in the North. This theory is becoming less tenable as insurance has been designed to key into the islamic faith as an acceptable insurance product.

Of all the reasons adduced as militating the growth, expansion and penetration of insurance in Nigeria, the most credible apparently is insurance practitioners themselves. Insurance operators have not been that proactive and creative. The practice has remained the same over the years with little or no drive to explore new terrain.

The present challenges are enormous. The questions are, what has happened to annuities? What of group life policies? Has the industry explored the insurance content in the Reformed Pensions Act? What definite programmes and policies has the industry designed for grass-roots life assurance? How many insurance companies actually explore the provisions of the 2003 Insurance Act to design new products?

The industry is indeed calling for aggressive visioners and performers who stand to see what so many others have not seen in this very buoyant insurance industry. As in many circumstances, such visioners are very few. They set the pace for others. The industry is on the look out for such egg heads.

Boards of directors become very important in this hunt to locate these valued performers wherever they exist. If there is any area that deserves adequate attention and scrutiny, it is this angle of insurance development.

As part of the steps taken by the National Insurance Commission in Nigeria having identified some of these challenges, is to place a lot of premium on the appointment of the board members to run an insurance institution. Mr. Daniel, who disclosed this at a forum said that the commission has identified this as a very critical success factor in its avowed effort towards repositioning the insurance industry.

Meanwhile, if what the new Chairman of the Nigeria Insurers Association (NIA), Mr. Wole Oshin said when he was given the mantle of leadership recently is any thing to go by, then the sky will not be the limit of the industry but rather a starting point.

Nevertheless, operators should guide against mediocrity and sabotage as they intensify efforts to register presence in every economic development project of the government. The regulatory authority should also not allow its plans be mere paper work, rather focus on more practical steps as the NIA and other regulatory authorities have vowed to work hand in hand with the apex authority of the industry, NAICOM.