Nigeria’s listed insurers have raked in a combined N1.15 trillion over the past six years, but analysts see the coronavirus pandemic weighing on future revenue.
A breakdown of the figures as gleaned from the 2019 audited financial statements of the 18 largest quoted insurers showed gross premium written increased by 19.57 percent to N276 billion in December 2019 from N231.56 billion the previous year.
That compares with a 1.16 percent premium growth in 2015 financial year, a period that coincided with the economic downturn brought on by the sharp drop in price of oil that tipped the country into its first recession in 25 years.
“Premium incomes will not grow this year because financial services move in the direction of the GDP. The coronavirus pandemic will undermine operating performance,” said Afolabi Lawal, chief operating officer, Old Mutual Insurance.
“Government, being the largest spender, has slashed its budget as it is poised to prioritise spending and that is a double whammy for the insurance industry that relies on corporate clients for significant revenue,” he said.
Lawal said the country could go into a recession, and that it is in a growing market that companies introduce new products.
Moronfola Monsuru, actuarial scientist at Wapic Insurance plc, said there could be lay-offs after the crisis since transactions are not coming in large numbers.
“Already, insurance isn’t on the scale of preference of people,” said Monsuru.
Economic activities have ground to a halt as the government last week extended by two weeks the lockdown ordered to contain the spread of the virus, which means businesses will remain stuttered for an indeterminate period of time.
According to the International Monetary Fund (IMF), Nigeria’s economy will contract by 3.4 percent in 2020, but rebound with 2.4 percent growth in 2021.
Zainab Ahmed, finance minster, recently warned that the country could fall into its second recession in five years if drastic actions were not taken to cushion the effects of the economic blow.
A sharp drop in the price of oil due to lower demand on the back of COVID-19 and dispute between Saudi Arabia and Russia forced the central bank to weaken the currency to N360/$ from 306/$.
The Federal Government had reduced its oil projections to 1.7 million barrels and has slashed a record budget of $35 billion it had approved in December by 15 percent.
The largest listed insurers are operating in an industry hobbled by poor regulations, apathy to insurance, and lack of innovation, which is why industry contribution to the economy is abysmally poor.
Nigeria, with a population of 200 million and a GDP of $444 billion, has an insurance penetration of 0.31 percent, compared with countries with similar GDP per capita, such as India with insurance penetration at 3.69 percent.
Despite the myriad of challenges, listed insurers have continued to grow revenue and reward shareholders from distributable profits.
In the last six years, insurers have generated a combined N1.14 trillion in gross premium income and N764.38 billion in net premium income, thanks to products such as third party motor insurance, employers’ liability insurance, group life insurance, builders’ liability insurance, healthcare professional liability insurance, and occupiers’ liability insurance.
However, analysts say these products and services are only concentrated in the statutory and informal sector that makes up 40 percent of the economy, adding that companies would have to look beyond selling compulsory insurance to corporates and concentrate more on the informal segment of the market.
In a recent report, analysts at Agusto & Co. said significant opportunities abound in the informal sector that can be harnessed through micro-insurance.
They added that these conceptual ideas will require technologically driven strategies to reach large Nigerian population while reducing cost of acquiring new policies in the long term.
“In our view, to be profitable, the ‘low margin/high volume’ philosophy should be adopted,” said the analysts.
One of the shortcomings of the industry is its inability to leverage on innovative products like mobile phone technologies, just as banks are using mobile and internet banking to lure more young people the financial ecosystem.
Analysts at Coronation Merchant Bank said insurance companies can deepen penetration by partnering with banks and telecom firms to reach low-income clients.
“In particular, we believe insurance companies could spearhead the development of micro-insurance in cooperation with banks, telecom companies, international development agencies and non-profit organisations,” said analysts at Coronation Merchant Bank. Related News
BALA AUGIE
