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Brouhaha for insurance penetration rather than recapitalization in a distress economy

Undoubtedly, Nigeria’s economy is in a serious quagmire and almost comatose, embroiled in recession upon recession and burdened by heavy debt, hyperinflation, insecurity internally, shaky and highly hemorrhaging with the government clueless about how to end the mess. It seems as if it has defied all economic logic courtesy of IBB in the military regime.

According to HSBC, the Nigeria economy is not growing and the IMF declared recently that Nigeria’s economy is under performing. Poverty is seriously ravaging the country and according to report release by National Bureau of Statistics (NBS) the number of Nigerians who are poor was estimated to be 82.9 million in May, 2020 and the forecast has it that the national poverty rate is likely to jump from 40.1 percent in 2019 to 45.2 percent in 2022 implying that 100.9 million out of 200 million Nigerians will be living in poverty in 2022.

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It would amount to overstatement to state that most industries are relocating from Nigeria to other neighbouring countries due to insecurity, government oppressive business environment and policies, various threats to business operations, plus impediments such as war risk insurance premium being paid by the country as severely depress the country’s GPD in all ramification and disrupted volume of trade in terms of exports and imports.

If this is the true picture of the environment and our economy is chronicled above, then an average officious bystander, would question “what proper role would insurance industries play to assist the prostate economy through GPD”?

How can the insurance industry be strengthened from them to contribute effectively and positively through risk bearing and underwriting and not ceding majority of risk to foreign underwriters for the growth of industries and economy?

It is vehemently submitted herein that the insurance industries regulators prescription of further recapitalization of insurance and reinsurance companies to the tune N18 billion and N20 billion respectively in Nigeria would not do the magic of making the industries more effective in insulating the economy from the present doldrums and or strengthening the industries to contribute positively to the economy or even advance the practice of insurance as the environment is not conductive at all.

The time the insurance companies were being asked to recapitalize was a challenging period because the economy was not viable enough to help business.

Although, in South Africa, the capital base for insurance is N8 billion equivalent to South

Africa’s Rand – 288, 069, 397.76R for life while general and composite is N10 billion equivalent to South African’s Rand – 360, 270, 200.00R respectively.

Reinsurance capital base is N20 billion, its equivalent is 720, 557, 941.60R and as at May, 2020.

The situation in Ghana is slightly different in that for life insurance, the capital base is N8 billion, equivalent is 116, 063.18 Ghana Cedi 145, 329, 412.60 respectively. Reinsurance capital base in Ghana is N18 billion equivalent of Ghana’s Cedi 261, 592, 942.68 it should be noted that South African and Ghana economy are different from Nigerian as the former are more progressive as Gross Domestic Product (GDP) is far higher and better than that of Nigeria.

Be that as it may, any attempt on part of regulators to sheepishly follow the benchmark of insurance in both countries without looking deeply into our own environment and business practices might lead to collapse of so many insurance industries and in turn affect the economy adversely.

It is further contended that whilst it is good to recapitalize and make insurance companies big and strong financial institutions to undertake and underwrite bigger risk and business in oil and gas, marine and others. However, that is not the basic problem of insurance industries; insurance industries need a road map to penetrate the public for optimal performance and it will engineer growth in the industry rather than recapitalization for now in view of the hostile economic environment that would not help business to survive.

It would be a worrisome development if recapitalization is allowed and even if various insurance industries through mergers and consolidation meet up the capital base as prescribed, it would be curious to see how they can navigate themselves in this murky waters of business melt down and economy “Quasioko” present in our country now. The implication will be that the various insurance companies would spend whole money of capitalization on management expenses and other frivolous things without bringing in any profit or revenue for the individual companies and that would unleash economic calamity on the insurance industries.

This is true because businesses on land in the country as at today cannot support the insurance company as they are not viable at all. The situation in the stock exchange with respect to insurance Stock is pitiable as the value is nothing to write home about. It is less than 1%. It would be recalled that the government is the largest supporter of insurance companies in Nigeria, although 85% of Gross Domestic Product (GDP) comes from the private sector, unfortunately, the private sector is weak because of ravaging poverty, insecurity, inflation and general decline in the economy.

It is suggested that ways and means to make insurance business penetrate the public and make the public aculturize to investing in insurance would be highly beneficial to the industry and economy. Presently the awareness of insurance is still at its low ebb and that is not encouraging at all.

In this circumstance, we call on the Federal Government to remove the labeling and tagging of Nigeria as a war risk zone and impose higher insurance premium cover which is partly responsible for negative growth of the nation’s gross domestic product (GDP) in 2020. It is equally suggested that other impediments like unripe planned recapitalization should be set aside for now and encourage real penetration of insurance to the public.

It is perhaps due to the above stated reasons that the nation’s insurance shareholders and owners have filled several lawsuits in court seeking to quash the planned recapitalization by NAICOM regulator as it is inimical to the interest of shareholders and the industry in general for now.

It must be stated with emphasis that NAICOM should embrace self-recapitalization and throw it open to insurance companies to self-recapitalize within some number of years for the stated amount. This will breed growth in the industry and end cacophonic voices in the industry.

Finally, NAICOM should as a matter of urgency, increase tempo in enforcing compulsory insurance policies such as third-party motor insurance, builder’s liability, workmen’s compensation Act.S.40, statutory Group life and others as a way of being proactive in regulation. This will greatly assist the insurance industry and economy.

Ndubuisi (Esq) is a Lagos based legal practitioner and National Coordinator of COGATLA, a group of lawyers in Lagos, Tel- 0805 550 0435

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