A slew of recent initiatives are targeting insurance reform in the corporate and retail segments in Nigeria, to help unshackle the latent potential of a sector that has traditionally struggled with spotty enforcement, limited capacity, and low penetration.
Nigeria’s financial services sector is one of the continent’s largest, and insurance is no exception. Gross premium income is expected to reach N1trn ($6.33bn) by the end of 2012, accompanied by 250,000 new jobs and a subsequent contribution of 3% to GDP, local media reported. This would mean a per-capita premium contribution of N7500 ($48), up from the current N1200 ($8). According to Daniel, in 2010, the industry grossed between N500bn ($3.16bn) and N600bn ($3.8bn); figures for 2011 are still being calculated by National Insurance Commission (NAICOM).
However, a number of structural bottlenecks have constrained the activity of insurers, both in the corporate and retail segments. As a result, NAICOM has sought to improve regulation and enforcement, in a bid to strengthen the most promising pillars of growth for the sector. “In the last three to four years, the industry has adopted more of a developmental strategy than regulatory,” Daniel told local media.
This can be seen at the legislative level, where compulsory insurance is helping drive penetration in a selection of product lines. At the moment, 16 insurance products have been made compulsory by law, but Nigeria’s insurance regulator, the National Insurance Commission (NAICOM), has said it intends to strictly enforce five of these that it said have the greatest implications for economic growth: third-party motor insurance, builders liability insurance, occupiers’ liability insurance, health care professional indemnity insurance, and statutory group life insurance.
The campaign to strengthen enforcement of these five products is part of the Market Development and Restructuring Initiative (MDRI), launched by NAICOM in 2009 to promote greater awareness and retail penetration in Nigeria with the aim of achieving a N1trn ($6.33bn) premium target by 2012.
New regulations such as these could indeed be beneficial for the sector, as compulsory insurance directives have provided a number of opportunities for local insurers. For example, according to Fola Daniel, the commissioner for insurance and the CEO of NAICOM, the compulsory group life insurance segment is one area of the sector that has recorded noticeable growth: life business grew to 42% in 2010 from 25% in 2009.
Perhaps more important is the drive to increase both capacity and participation by domestic insurers in some of the country’s big ticket projects – many of which are currently covered by foreign insurers. For example, NAICOM is working closely with the Nigerian Insurance Association (NIA), the local professional industry group, to fine-tune the underwriting guidelines for oil and gas insurance. These efforts are intended to enable Nigerian insurers to reap the benefits of the Local Content Act, passed in 2011, which requires that local insurers underwrite a minimum of 70% of the insurance policies for the oil and gas sectors.
Thus far, however, the capacity of domestic operators to cover the multibillion dollar projects has been limited, with the Nigeria National Petroleum Corporation (NNPC) and oil multinationals expressing concern that Nigerian insurance firms do not have the requisite levels of capitalisation to handle large risks.
Daniel, NAICOM’s CEO, identifies both insufficient capacity and training as one of the barriers to growth in this area. “Though people are suddenly finding themselves with capital of N6bn ($38.09m) or N7bn ($44.44m), it does not mean that everyone knows about oil and gas,” he told local media recently. “The operators really need to make a deliberate effort to train personnel to understand the oil and gas business.”
As the sector continues to advance, and NAICOM’s efforts to normalise regulations and enforce existing mandates continue, these measures have the potential to positively and meaningfully impact the insurance sector.