Out of 59 underwriting insurance companies operating in Nigeria, 25 are projected to meet the new minimum capital requirement set by the National Insurance Commission (NAICOM) when the deadline comes on 30th June 2020.
This is according to Coronation Research, a part of Coronation Merchant Bank, in an insurance industry outlook report released Friday in Lagos.
“As a result of the capital requirement, insurance companies are likely to reduce. In our view, the number of Nigerian insurance companies will drop from 59 to a figure around 25,” Guy Czartoryski, head, Research, Coronation Merchant Bank told BusinessDay on the side-lines of the report launch in Lagos.
In May 2019, Insurance regulator NAICOM issued a circular requiring steep increases in authorised capital by June 2020. Current total capital is approximately N300 billion, which brings the deficit to an estimated N169.1 billion.
According to the industry report titled: ‘Moving from the Lagoon to Ocean’, the 2019 insurance reform will most likely take the turn of the banking reforms of 2004.
Fifteen years ago, Nigeria’s banking industry was hit by a capital requirement reform which saw the reduction of banks from 89 to 25. However, industry experts expect the higher capitalisation to increase underwriting capacity and then provide potential to roll-out a much bigger industry than currently exists.
“Nigeria’s insurance sector presents perhaps the most remarkable investment case of any industry in Nigeria,” Coronation research, said in the report.
At current level, Nigeria with the largest economy in Africa has insurance penetration (total gross premium/GDP) at 0.31 percent. This is extremely low, even compared with countries with similar GDP per capita, for example India with insurance penetration at 3.69 percent.
“Experience in other countries shows that, in the right conditions, insurance can be rolled out to India’s level in eight to 10 years. So Nigeria could go from 0.31percent penetration to 3.69percent penetration in eight to 10 years,” Czartoryski said.
For this growth to be achieved, the Research arm of the bank recommended a collaboration of three industry regulators; Central Bank of Nigeria (CBN), the Nigerian Communications Commission (NCC) and NAICOM, in order to enable industry expansion and availability of different products.
“If you have a good regulatory collaboration; a good collaboration between NAICOM, the Telcos, and Banking, then you are on track to achieve the 3.69percent penetration in 8-10 years, but if you don’t have that collaboration, then that is where the real risk lies. So I think it is a case of necessity,” the head of Research explained.
According to Coronation Research, the growth reported in other subsectors of Nigeria’s financial industry holds hope that insurance will also see the break of dawn.
Abiodun Sanusi, director, Investment Banking, Coronation Merchant Bank commented that the ongoing recapitalization in insurance will eliminate the industry of fringe players, strengthen capacity of those who survive to enable them deliver consumer value, meet claims obligations, roll out products, embark on brand awareness campaign, and most important restore confidence and build trust.
He said that a lot of progress has been made in the insurance industry in the last few years in the area of trust and confidence, believing that at the end of the exercise more achievements will be made in these areas.
Modestus Anaesoronye, Bala Augie & Endurance Okafor
