Insurers cash-in on informal sector potential for higher retention, profitability

As the nation’s commercial insurance space shrinks due to keen competition,  the economic downturn , low retention capacity and rising claims, insurance companies would have to shift attention to opportunities in the informal sector and the retail line of business to remain profitable and grow the market, BusinessDay investigations have revealed.

This is coming on the heels of increasing premium flight in major high profile risks in oil and gas, energy and aviation and other corporate accounts which the industry has concentrate on over the last 50 years of the nation’s insurance industry.

Analysts who spoke to BusinessDay last night observed that since the industry’s capacity is rather too small to retain most of the high profile risks, particularly in the oil and gas sector, resulting in most of the businesses emanating from the local market going offshore through reinsurance, the retail end would provide the needed base for market growth.

Akin Ogunbiyi, group managing director, Mutual Benefits Assurance plc, one of the leaders in retail business, said over 90 percent of the premium on oil and gas and other big ticket risks are placed overseas on facultative arrangement, underlying local capacity for such businesses.

“For every one activity in the formal sector, there are nine of such opportunities in the informal sector. We must leave our comfort zone if we must lead the financial services industry, like what is found in the advanced market, and develop the retail segment. That is where the growth is, Ogunbiyi said.

“If insurance is to meet the target set by the National Insurance Commission (NAICOM), under the Market Development and Restructuring Initiative (MDRI) which was N1 trillion in 2012, we need to grow the grass roots market, the informal sector that makes up 60 percent of the working class,” Ogunbiyi said.

He further observed that Mutual Benefits is investing seriously in the segment having opened 52 new rural branches in the last one year and 72 new products for specific customers.

Segun Omosehin, managing director, Mutual Benefits Assurance General, said claims experience in retail insurance is far less  than is found  in corporate business, recalling the huge claims that the industry had to pay from the WAMCO flood experience, NBC Benin fire incidents and Dangote in the last four years.

“What we are trying to tell our colleagues in the market is that we need to do the initial investment and now wait for the business to grow.

“In Mutual Benefits, we have invested heavily to open branches in the rural areas, relationships with host communities, and are beginning to reap the profits, Omosehin noted.

Oye Hassan-Odukale, managing director, Leadway Assurance Company Limited, said one of the things insurers have been accused of in Nigeria is the inability to reach the larger populace, and that is why we are having low penetration. “You penetrate insurance better by selling to a larger number of people. Nigeria has a population of over 175 million people, and when we say that the market is tough, people outside Nigeria see it as opportunity because they look at the number of people we have that we can sell insurance to.

“We have been a bit lazy, I will be frank with you .We are not trying to reach people enough with insurance. We have a lot of challenges, but that is not enough reason for us not to try and take advantage of the opportunities that are just lying at our door steps in terms of retail market, but I think we are waking up to it.”

Hassan-Odukale however observed that retail is very expensive, but is the only way out. “If you don’t face it now, you have to face it some other time. Corporate insurance with time may reduce because there are a lot of mechanisms in term of managing risks.”

He further observed that foreign insureres found this scenario very attractive. “When you see some foreign companies coming to Nigeria, that is what is attracting them. They are not coming to Nigeria to insure NNPC, no; they are not interested in that, they are coming to Nigeria to insure people like you. They know that dealing with a large number of people is going to be expensive initially, but when you overcome it, you will just be cruising,” he said.

Chike Mokwunye, group managing director, Royal Exchange plc said his company has long identified the potential in retail business, using e-business channels of distribution, having realised the entire market was pursuing the same line of business and it was necessary to develop alternative channels. “We needed to be different from others and that was what made us go into that area and we made heavy investment in alternative distribution channels.

“Remember we started with using recharge cards, and from there we extended to platforms where you can use your credit card and debit card in form of transfer to pay online, and it has helped the company in coping with the problems associated with the economic downturn.

“So, we were able to cover up losses from corporate business with benefits associated with the retail segment. It is a profitable line of business and less prone to claims,” Mokwunye observed.

Modestus Anaesoronye