Insurance industry could help economic diversification in Nigeria

The nation’s insurance industry has the capacity to support government diversification efforts, but has been pulled down by pervasive structural constraints, experts said.

This is according to report conducted by the Centre for Financial Regulation & Inclusion and the World Bank to understand how insurance market development can contribute to sustainable and inclusive growth.

 Albert van der Linden, speaker/senior Research Associate, Cenfri released the report at the Insurance Directors Conference organized by the Center for Insurance and Financial Management.

He said thatthere should be opportunities for insurance on the back of the turnaround of the economy; and, in principle, insurance can support several of the ERGP pillars.

According to the report, foreign acquisitions of local insurers over the past few years confirm the opportunities in the Nigerian market, but however lament the market features challenging the industry’s ability to reap the returns:

Amongst them are-

 Fragmented market with often poor performance

At 59 licences across a relatively small premium pool, the insurance market is fragmented. Apart from a few larger and stronger insurers, there is a large tail-end of insurers with small balance sheets and often weak business fundamentals1. For many insurers, expense ratios are high and claims ratios are either too low to provide consumer value or too high to attain profitability.

Limited asset base constraining capacity to absorb risk

The ability of the insurance sector to fulfill its role as risk manager in the economy is determined, to a large extent, by the size of its assets. Insurance companies hold only 2.5 percent of total financial sector assets, with the majority of those assets being on the balance sheets of general insurers.

Skills constraints

Technical skills are scarce, and the number of insurance professionals is disproportionately low for the number of insurers and brokers in the market. The scarcity of technical skills also affects the regulatory authority and its ability to regulate and supervise the market.

Trust deficit

Poor-performing insurers and a poor claims track-record are fuelling public distrust in insurance. The market’s reputation is further tainted by compulsory insurance lines that are poorly enforced and seen by the populace as a tax, rather than a benefit. Overall, Nigeria exhibits features of relatively low insurance market development: Corporate and compulsory general insurance still accounts for the bulk of premiums. Life and health insurance is largely provided on a group basis, serving only a small, relatively high-income base, and the individual retail insurance market is nascent. Against this backdrop, how is insurance in Nigeria faring in supporting household resilience, business growth and capital market development, respectively; and where do the main opportunities and imperatives lie?

 

Modestus Anaesoronye