There is no gainsaying the fact that ‘emerging economies’ have become a major force in global politics and economic decision making. By definition, an emerging economy is one in which the majority of the population lives on incredibly modest incomes. Insurers, therefore, need to identify cost-efficient methods of product delivery and administration.
Long gone is the misconception that the economies of emerging markets exist solely for exploitation- the rise of the B.R.I.C.S (Brazil, Russian, India, China and South Africa) alliance as important economic players on the global stage, for instance, has mandated a paradigm shift in the way the developed world views hitherto termed “third world” countries. Furthermore, recent trends in Information Technology have led to the creation of a global economy; one in which every national economy is ever more intertwined with others.
Nigeria is one such economy. Since the turn of the last decade, the country has witnessed tremendous financial growth with an annual average of 7.4 percent. Needless to say, Nigeria’s position as the eighth largest producer of oil in the world has contributed to this growth, and the country’s vast population, teeming with prospects and opportunities, also makes it a viable target for foreign companies and organisations.
However, as the country’s economy continues to develop, and with the attendant risks involved in economic expansion and growth, it is indeed imperative to consider the role of insurance as an important determinant in the said growth. Following the recapitalisation of the insurance sector in 2007, the country’s surviving 71 insurance companies raised their capitalisation thresholds by over 1,000%. This has indeed led to relatively stronger companies eager to take advantage of the burgeoning global economy.
Efficient insurance markets are an essential basis for emerging markets to achieve integration into the global economy and strong economic growth. With their capacity, capital and know-how, global insurers play a key role in this process. Most Latin American, Asian, Central and Eastern European countries began removing barriers to insurance market entry at the beginning of the nineties, and we are currently witnessing the significant growth these economies are experiencing.
Insurance companies are undoubtedly important financial intermediaries in both mature and emerging markets. This is because the emerging markets offer a higher potential of return to investors from mature markets, but that comes with higher risks. These countries contain political risk, country risk, exchange-rate risk and others that investors must be aware of before investing. The presence of a healthy, viable insurance sector thus encourages more FDI, particularly in a country like Nigeria unfortunately renowned for its high risk-value.
However, the general attitude to this fact in Nigeria has been a mixture of myth, misunderstanding and ignorance. Cultural issues and attitudes also stymie the role of insurance in fast-tracking Nigeria’s economic growth, but beyond cultural differences that can hinder insurance expansion, underlying economic issues may require attention before any significant, major advancement can be achieved.
Also, creativity, flexibility, and patience are required to establish successful insurance mechanisms in any culture; this holds doubly true for entirely new opportunities that are created within emerging economies like Nigeria.
The importance of insurance in Nigeria becomes even more evident when we consider the fact that in recent years, there has clearly been more rapid growth in global trade, direct investments and portfolio investments than in the production of goods and services around the world. It would therefore serve the country well to begin to explore the opportunities insurance presents. This comes by way of effective policy actions in the Nigerian insurance industry, which emphasise the status of insurance companies in Nigeria.
The Nigeria Deposit Insurance Corporation (NDIC) has in recent times organised a series of conferences in this regard. Also, the African Insurance Organisation (AIO) conference in Sudan in May 2012 and the Chartered Insurance Institute of Nigeria (CIIN) conference in Abuja in July 2012 further boosted the profile of insurance in Nigeria. Conferences and seminars of this nature contribute to increased sensitisation of the public and stakeholders, and also to the building of enduring institutions that can compete globally.
The role of insurance in transforming third world economies into developed countries cannot be overestimated. Folusho Alliyu is the chief underwriting officer at Custodian and Allied Insurance plc.