The insurance industry has continued to grapple with the impact of the weak naira against other foreign currencies.
This coupled with high production and operational costs in trying to deliver services, has limited the industry, even as consumers’ appetite for insurance remains low, making Nigeria one of the countries in the world with the lowest rate of insurance penetration, even as the country’s currency continues its free fall.
According to analysts, insurance grows in an economy where asset acquisition is growing, where access to credit which ignites insurance buying is on the rise, and these have eluded the economy in its 63 years of existence.
The tough operating environment underscores why insurance has not assumed its rightful place in the financial services sector, still contributing less than one percent to the country’s GDP.
Analysts say returns on investment in insurance have not been attractive and rewarding enough in terms of dividend payouts to shareholders and the price of insurance stocks at the NGX.
Though insurance penetration in Africa’s most populous nations remains low at 0.5 percent, the sector is believed to have the potential to contribute more significantly to the GDP given the country’s population of over 200 million.
Sunday Thomas, commissioner for insurance/CEO, at the National Insurance Commission (NAICOM), said the industry has paid out N550 billion on claims in the first half of 2023, against N398 billion claims paid in the whole of 2022.
He noted that analysing the impacts of losses, especially from the angle of paid claims reveals the extent of insurable adverse events, which if not insured would have slowed down economic activities that galvanise growth and development.
Thomas said all institutions, including the government, embark on strategies for maximising revenue and optimising expenditures, which may constitute exposure to financial insecurity, stressing that insurance is often considered a first-line priority in ensuring financial security as it serves as a component of risk management system that mitigates the impact of financial risk on entities, government, other institutions and individuals.
While commending President, Bola Ahmed Tinubu on efforts to open up the economy through diaspora partnerships, foreign direct investments as well as enabling business environment in Nigeria, he said insurance was critical for its overall success.
“There can’t be attractions without institutions covering the risks associated with such openings to the world, the nation must, therefore, think insurance when considering the risks of expropriation, currency inconvertibility, terrorism and sabotage, sovereign and sub-foreign obligor risks, protracted defaults and many other risks.”
Thinking insurance in the developmental process, he said, enables investors to concentrate on commercial aspects of investments while relying on the comfort of the cover provided by insurance institutions for pure risks, not excluding political risks.
At the end of the fourth quarter of 2022, the insurance sector recorded a gross premium of N726.2 billion, representing a 36.3 percent growth quarter-on-quarter and 17.8 percent year-on-year.
The industry’s total asset in the fourth quarter was put at N2. 328 trillion, sustaining a positive growth that signifies expansion at the rate of 2.4 percent, quarter-on-quarter and at 4.4 percent year-on-year.