At the Nigerian Council of Registered Insurance Brokers (NCRIB) in September, the insurance commissioner, Fola Daniel, called upon delegates to self-police in order to raise the standards of professionalism in the insurance sector. "The NCRIB and others should sanction reckless members that are bringing the name of the associations and industry into disrepute," he said, adding that the current climate of financial turmoil is the ideal time to overhaul the insurance industry.
This push is part of a comprehensive effort by NAICOM to expand industry capacity and increase consumer protection, in line with the government's larger goal of turning Nigeria into an international financial centre by 2020. A Code of Corporate Governance, published in February 2009, introduced new conduct guidelines for insurance underwriters and brokers. In August, the regulator unveiled Market Development and Restructuring Initiatives (MDRI), a series of three-year targets that include increasing the industry's gross premium income from N164.5bn ($1.08bn) to N1.1trn ($7.2bn) and creating 250,000 jobs in the sector. In addition, MDRI seeks to boost the insurance sector's GDP contribution from 0.72% to 3%. Nigeria's insurance per-capita expenditure of N1200 ($8), significantly lower than South Africa's ($686.50) or Morocco's ($44.90), is targeted to increase to N3000 ($20).
As equity markets sank, many Nigerian insurance companies posted heavy losses in 2008. However, NAICOM has discounted the possibility of a bailout, calling instead for increased cooperation between insurers and the government, and for the insurance industry to expand its range of products. Local press have reported that an insurance audit similar to the one seen in the banking sector in August can be expected for the near future, targeting those companies selling fake insurance certificates, charging unreasonable rates and withholding premiums. "We want to bring the same transparency and accountability that has taken hold in the banking sector to the insurance sector in order to increase investor and client confidence," Daniel told OBG.
In a country where less than 5% of the population has any type of insurance, NAICOM is not the only one seeking to increase consumer confidence – insurers are eager, as well. The Insurance Awareness project, launched in spring 2009 by 10 underwriters, is designed to raise public consciousness as to the benefits of insurance coverage.
While public distrust of insurers is partially responsible for a low penetration rate, so is the government's failure to enforce compulsory insurance. Under the Insurance Act of 2003, 16 types of insurance are compulsory. Automobile insurance, required by the country's 15m drivers, is the largest insurance segment, yet many vehicles are not properly insured. A recent NAICOM study found that 39% of vehicles had fake certificates and 8% had expired or wrong policies. As compulsory products now generate 55% of the insurance industry's revenue, improved enforcement of these policies would drive up sales in the retail segment.
Following waves of industry reform in 1991, 1997 and 2003, NAICOM initiated a consolidation of the insurance sector in 2007, paring down 103 companies to 49. "The aim has been to produce very strong insurance players," Daniel told OBG. The industry expanded as a result, with the gross premium income jumping from N100bn ($662m) in 2007 to N167bn ($1.1bn) in 2008. At the time, new capitalisation requirements were also issued for insurance companies: N2bn ($13.2m) for life underwriters, from N150m ($995,325), and N3bn ($19.8m) for non-life, from N200m ($1.3m).
However, the number of companies has proven to be less important than the market's capacity, leading to the current round of NAICOM reforms.
"Institutional and individual capacities have remained largely underused while economic opportunities, crucial to national growth, became lost in the process," said the minister of state for finance, Remi Babalola, at the launch of NAICOM's Code of Corporate Governance. "There is an urgent need to refocus the industry." With any luck, the audit rumoured to be looming over the insurance industry will eliminate low-performing and corrupt companies, allowing for a stronger foundation for growth.