• Tuesday, July 16, 2024
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Insurance, pension will save Nigeria from high cost of borrowing

Nigeria states with highest external debt

Nigeria’s high cost of borrowing and increasing domestic debt will remain a challenge for a long time to come unless there is a strategic effort to develop insurance and pension sectors as major providers of long term funds for economic development.

Though pension has assumed a growth trajectory since the commencement of the Pension Reform Act 2004, which has put its assets in excess of N3.4 trillion and investible long term fund at N1 trillion, the insurance sector is still hugely underdeveloped with a total premium income of N250 billion as at end of 2012 and investible insurance fund of N50 billion.

While it’s been agreed that the government has begun a process to develop the pension sector by contributing regularly into the retirement savings account of its employees, its obligation to the insurance industry in terms of payment of premium for cover purchased has been very poor.

Being the biggest consumer of insurance in the country, its regular payment of premiums or otherwise has great impact on the success of the insurance industry, resulting in a situation where many operators today blame government of its slow growth and development.

Read also: Ensuring value-for-money and debt sustainability in public borrowing

Analysis of government’s group life insurance for its employees shows that out of between N12 and N15 billion premium owed insurers by government in 2012, only 49 percent has been paid to date, meaning that 51 percent of the premium is yet to be paid while the insurers are meeting their claims obligation.

Now, with six months gone in the current year, the insurance cover is yet to be effected, premium still not paid while employees continue to die in numbers, and a recent example is the 66 policemen who died recently in Nasarawa State and many other workers that have died over one incident or the other across the country without insurance.

Underdevelopment of the insurance sector will result in a lack of long term funds for economic development. In this case, government which ought to access long term funs from these sectors will continue to dry the capital market of funds through sell of bonds, making it difficult and at very exorbitant rate for the private sector to access funds.

This is a major reason for high cost of borrowing in the economy which currently stands at around 24 and 25 percent.

The high interest rate which has largely crippled the manufacturing the manufacturing sector is making cost of production high, creating unemployment and underdevelopment of the larger economy.

According to the Debt Management Office, domestic borrowing by government stood at N744billion in 2012 and N852 billion in 2011, pointing to the fact that government was taking money that could have been accessed by the private sector for productive activities.

Industry experts who commented on the development said government must be committed to developing the insurance sector by paying its premium as and when due. This will not only bring stability to the industry, it will enable them invest the premiums for return to enable them meet claims obligation and provide long term funding for needy sectors of the economy.