BusinessDay
Nigeria's leading finance and market intelligence news report.

#EndSARS’ experience reaffirms relevance of insurance

…as insurers record N20.4bn claims in riot

The aftermath of October 2020 EndSARS protest in Nigeria has reaffirmed the importance of insurance as a fall back mechanism and best risk management plan for individuals and businesses.

Insurance has even become more relevant due to the absence of a robust social security system in the country, Augusto & Co reveals in its 2021 Nigerian insurance industry report released last week.

Meanwhile, according to the Nigerian Insurers Association (NIA) 25 insurance companies have recorded claims totaling N20.4 billion from the #EndSARS protest, while they have also reserved about N13.2 billion to settle the claims.

Yetunde Ilori, director-general of NIA had stated that out of total of 1,661 claims received, 143 have been fully settled, while a total of N105 million claims have been paid.

She also informed that 539 claimants were yet to substantiate their claims with necessary documentation, while seven claims were repudiated because they were not covered by any of the policies.

The August & Co report with the theme ‘Forging ahead despite headwinds’ stated that ‘the riot that trailed the #EndSARS protest emphasised the importance of insurance products, particularly with the absence of a robust social security system in Nigeria’

It also noted that the violence/riot that trailed the protest could be a catalyst for insurance uptake, given that the insurance penetration rate has remained less than 1 percent in Nigeria.

The report further highlighted that the riot impacted the industry in terms of additional claims, which in turn impaired profitability for the 2020 financial year and would moderate the performance of some insurers in 2021

Agusto & Co Limited, the pan-African credit rating agency and the foremost business information provider said the 2021 edition of the annual report provides a comprehensive review of the insurance landscape in Nigeria and the near term expectation for the industry.

Contained in the report is a review of the coronavirus pandemic, as it affects the Nigerian insurance industry and strategies adopted by insurers to minimise the associated disruptions while optimising the opportunities provided by the pandemic.

Agusto & Co estimates a 15 percent growth in Gross Premium Income (GPI) for the financial year ended December 31, 2020.

“Innovation in product distribution induced by the pandemic, regulatory-backed opportunities including the digitalisation of marine insurance certificates and increasing awareness of the benefits of insurance products were some of the GPI growth drivers during the 2020 financial year.”

Agusto & Co expects the on-going recapitalisation exercise to change the structure of the industry. “Notwithstanding the setbacks, Agusto & Co believes the recapitalisation exercise could be a watershed in the Industry. In addition to the benefits accruing from a larger capital base from a risk underwriting perspective, improved investment management practices will be upheld by a larger investment portfolio driven by a need to generate adequate returns.”

It further noted that the recapitalisation exercise has elicited mergers and acquisition transactions in the industry, so anticipates an uptick in these transactions as the deadline draws near.

“The shareholding structure of most insurers is expected to change in the near term as some investors leverage the exercise to either gain or increase exposure to the Industry. With the gradual rebound of the global economy, more foreign investors are expected in the industry, given that the naira devaluation has reduced the value of insurance companies (in USD terms), despite the undisputed opportunities in the Nigerian insurance industry.”

The entry of new players after the embargo that lasted over a decade was a key point in the industry. “In November 2020, six new operators were licensed in the life, non-life, and reinsurance segments of the Industry. The firm anticipates the entry of more players, particularly from existing financial institutions seeking opportunities for diversification of income.

“Agusto & Co believes that the new players will intensify competition in the Industry. New insurance products and business practices are also expected from these new players.”

The agency also expects a better performance by the industry in the near term if opportunities accruing from the pandemic and #Endsars are optimised.

“The gradual increase in the prevailing interest rate will also support the investment income of insurers. It is expected that more innovative product distribution channels will be introduced to reduce the dominance of insurance brokers. Notwithstanding, Agusto & Co believes the insurance brokers will remain strategic to the Nigerian insurance industry given the wholesale focus of the Industry.”

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