Despite the setbacks suffered by the Nigerian insurance sector before now, it still remains one of the most fascinating to do business due to its significant hidden potential waiting to be unlocked. This potential is untapped because the nation’s economy, though the largest in Africa yet, with its GDP of N173.53tr, for a country that remains the most populous in Africa with over 200 million people, has an abysmally low insurance penetration rate of 0.5%. One can only imagine the impact of working that number to just 5% over a given period.
The reason why this number must be driven northward is not farfetched, given the outcome of studies showing that there is a positive correlation between a high insurance penetration and greater economic development. This is because of the supporting role insurance plays in stimulating economic growth. Bearing this in mind, one can only imagine what effect an increase in insurance penetration, even by the slightest margin, will have on the overall Nigerian economy.
A number of challenges continue to bedevil the sector especially inappropriate pricing and risk profiling, poor product-market fit, inadequate distribution channels and low public confidence. Prior to the COVID-19 pandemic, industry players were already exploring a range of options to help militate against these challenges. They must now return to where they stopped by relaunching these options with the help and political will from the various tiers of government.
The regulator, the National Insurance Commission (NAICOM) in 2019, reviewed and increased the minimum capital requirements for various classes of insurers in the country, as part of its on-going industry reform efforts to birth stronger players. It was also aimed at restoring public confidence in the industry, and boosting international competitiveness among local operators across the various sectors. This was especially true of such specialist areas like oil & gas, energy, maritime, as well as aviation, thereby shaping the future and development of the Nigerian insurance industry.
Besides the regulatory nudge, leading Nigerian insurers were already rethinking their processes and business models, faced with a changing global business environment and evolving customer preferences and seeking to enable efficiency and cost savings. Many, for instance, sought to adjust their investments priorities towards critical technologies, while also refocusing their efforts toward transforming, or modernizing their core technology systems. Two years into the pandemic, however, these technology leaders have emerged with better results making the possession of core technology systems a great differentiator between those who are able to ride-the-wave of the pandemic and their peers that are still struggling.
But digitally mature organisations are coping successfully with challenges triggered by the pandemic, because they were “more resilient, better able to navigate change and perform significantly better financially as compared to the businesses without a cohesive digital strategy.” This is just as we have witnessed over time in its transformation of its banking industry cousin, with huge investment in modern core technology platforms as the foundation of digital maturity and the answer to unlocking the hidden potential of Nigeria’s insurance industry. Such platforms have the inbuilt scalability; resilience and adaptability that enable insurers to not just survive, but also thrive during disruptive times as the world is in currently.
A strong foundation enables insurers to quickly adapt and continue delivering insurance solutions, including instant policy underwriting and faster claims processing that builds customer confidence and loyalty. This will thereby boost the profitability level of the sector and further boost the ongoing industry recapitalisation and reforms aimed at attracting businesses and investment that will support return on investment.
We have seen an improvement in the timely filing of financials by players in the industry as and when due, unlike in the recent past, a situation we believe will help existing and potential investors plan their investment, besides enabling analysts to make forecasts that will aid the investment decision making process.
With the “No Premium, No Cover” rule, which is expected to ensure that no insurer grants cover without fully receiving the premium or a premium receipt from the relevant broker, the industry is beginning to witness a semblance of order and professionalism. This can only be enhanced with more adequate regulation and enforcement of rules, just as operators must uphold themselves by the highest global industry standards. The industry cannot afford a return to the sad past when brokers rather withheld premiums collected and invested them in interest-yielding instruments for themselves, thereby causing delays in claims payment by insurers when the need arises before the maturity date of the investment.
The proposed increase in premium and the creation of new insurance products must, therefore, take into consideration current developments in the economy, especially in the agricultural sector, cyber security, and others through effective technology.
The improving activities and price movement of insurance companies on the Nigerian Exchange in recent times have been attributed to the recapitalisation exercise, and the ongoing reforms as investors expect the consolidation and eventual Merger & Acquisition activities to happen. There is the hope that such may drive value for minority shareholders, especially.
The table above shows the recent unaudited financial position of selected insurance companies as of December 31, 2021, released in January.