Appropriate risk pricing and returns on fixed-income securities have been identified as key factors that will drive insurance sector growth in 2024.
According to an analyst at Agusto & Co, the insurance industry will remain on a growth trajectory in 2024 despite the economic headwinds and falling disposable income.
Ayokunle Olubunmi, head of financial inclusion at Agusto & Co. speaking on Channels TV business session on Wednesday, on the theme: ‘The Nigerian insurance industry: Navigating the turbulent terrain, said with the efforts of the industry to stay on its initiative of appropriate risks pricing of policies, it will fare well in the current year.
“I think the industry will do better in 2024 from what played out last year, which is that whatever risks you are taking in, must be appropriately priced.”
“What we saw prior to last year was that risks were not appropriately priced, such that some policies were written at a loss. But with the initiatives of the National Insurance Commission (NAICOM) and the Professional Reinsurance Association of Nigeria (PRAN), which is insisting on appropriate pricing for fire policy, things look better for the industry.”
Olubunmi also said that the industry will do well in terms of investment income; because there is no way you can talk of growth of the industry without looking at the performance of their investment portfolio.
“The bullish run we are having at the equities market, returns on fixed income securities, and yields on government securities now about 26 percent will all rub off on the insurance sector investment portfolio,” he said.
He added that some sectors like oil and gas were picking up in activities, which he noted would impact the growth of other sectors like insurance.
On what drove the industry growth last year, he recalled that in December 2022, the regulator increased the premium for third-party motor insurance from N5000 to N15000 and for comprehensive insurance to a minimum of five percent. These helped the industry very significantly.
According to him, the devaluation of the currency last year affected dollar-denominated assets, including energy and aviation risks and these affected the insurance industry positively on dollar-denominated premiums.
“Given that premium that were paid is a function of the value of the assets, this affected the income for insurance companies positively”.
“There were also development initiatives by the industry, which saw a lot of the institutions embracing digital technology, a lot of them also collaborated with banks and insuretechs and all of these helped in product distribution.
“There was also growth in real terms when you consider new engagements, but not that much compared to growth from premium pricing and naira devaluation”.
He said the rising popularity of micro insurance and takaful insurance since the initiative was launched in 2018, and the issuance of licenses up to last year were bringing some people to take up insurance or people who were not into insurance before now coming to take insurance.
“The truth is that a lot of Nigerians are not aware of insurance and how it works, what is covered and what is not covered. Some people don’t even understand the process of making claims or why insurance companies should ask relevant questions before making payment for claims.”
According to Olubunmi, a lot of sensitisation needs to be done so that people can understand that if an insurance company is asking questions, it is not because it wants to avoid claims.
He also noted that NAICOM was taking the initiative to help people understand the benefits of insurance through awareness creation, and they have also opened their windows such that people who have complaints with their insurance companies can come for help, he said.
On efforts to penetrate the informal sector, he said the industry has got a lot of initiatives through the micro insurance and takaful window, but noted that the current economic situation is a kind of drawback on those initiatives because the disposable income of consumers has drastically reduced.
“Let us also not forget about the kind of economy we are operating in. Things are tight, and in periods of economic headwinds like, this people are cautious with their spending and those at the lower end of the ladder are mostly affected, the analysts said.
