An overview of The Insurance Industry in Nigeria
The insurance industry of Nigeria consists of 57 registered insurance companies. 14 of them are in the life insurance business while 43 are the non-life insurers. There are also 2 reinsurance companies whose roles are to provide technical security and capacity for the insurance companies.
Most of the insurance companies are incorporated pursuant to the Companies and Allied Matters Act 1990.
Other stakeholders of insurance in Nigeria include agents (individual and corporate), brokers, surveyors and third party administrators servicing health insurance.
The fundamental idea of insurance is that the insurer will ensure instalment for an unsure future occasion while another party, the insured or the policyholder, pays a small premium to the insurer in return for that security on that uncertain future occurrence.
The National Insurance Commission (NAICOM) is the Federal Government operator rested with the supervisory and administrative capacity of the protection business in Nigeria. Some way or another, the advancements in the business are for the most part supported by the NAICOM through her yearly rules and mandates to protection administrators.
The prime business operation is of holding the insured (customer) free from economic jolt/s arising out of certain agreed insured events.
The fact remains that none of the proposed events can ever be predicted with precision nor the actual magnitude, if at all an event impacts. Neither the insurance companies nor the best of the number crunchers can forecast events or their outcomes accurately.
Therefore, the insurance companies generally have to keep their fingers crossed till their business year gets over to know whether they have made a profit or not.
The Insurance Industry controlled an investment portfolio of about ₦723 billion as at FYE2016, with about 60% of total investments in the money market placements being both bank placements and government securities).
There are 460 registered insurance brokers and about 15,000 insurance agents. The Nigerian insurance market has been described as brokers’ market because presently brokers control over 90 per cent of the premium income, with less than 10 per cent for insurance agents and even direct marketing channel by insurers.
NAICOM reviewed micro-insurance guidelines in 2018. The minimum capital base was reviewed as follows:
- ₦40million (₦15million for life business, and ₦25 million for general insurance business) for companies that will do business in the community.
- ₦100million (₦40million for life business, and ₦60million for general insurance business) for State business.
- ₦600million (₦200million for life business, and ₦400million for general insurance business) for National business.
Investments and Recent Developments
The following are some of the major investments and developments in the Nigerian insurance sector:
- NAICOM released the blueprint/guidelines 2016 for the implementation of the Risk-Based Supervision (RBS) model for the insurance industry.
- Insurance companies are expected to increase their capitalization from ₦5 billion to ₦15 billion, while those interested in the same tier but operating life business are required to recapitalize from ₦2 billion to ₦6 billion.
- Composite insurers are required to recapitalize to ₦7.5 billion, non-life operators to ₦4.5 billion, while life operators under the Tier 2 category are to increase capitalization to ₦3 billion.
- To this end, non-life insurance firms in tier 3 are to maintain ₦3 billion; life insurance operators, ₦2 billion; and composite insurers, ₦5 billion.
The Government of Nigeria has taken a number of initiatives to boost the insurance industry. Some of them are as follows:
- A resource mobilization plan, developed with technical support from Health Policy Plus (HP+), enabled the Federal Capital Territory (FCT) to secure $809,000 from the government to fund health insurance for 25,000 indigent persons in 2019.
- The Nigerian government enacted various sectoral laws and established regulatory agencies to give effect to the IA provisions, including the Nigerian Council of Registered Insurance Brokers Act (NCRIBA), the National Insurance Commission Act (NAICOMA), and the Federal Road Safety Commission (Establishment) Act (FRSCA).
- Improved enforcement of the current framework of six compulsory insurance policies by the Nigerian government should also positively impact the IPR.
The future looks promising for the life insurance industry with several changes in the regulatory framework which will lead to further change in the way the industry conducts its business and engages with its customers.
The micro-insurance business needs to be viable for insurance companies and must be funded by premiums. It is not social welfare or social assistance, but a complementary insurance market solution.
Also, for micro-insurance to be accessed by the low-income market, it needs to be affordable and appropriate to the target market’s needs and within convenient reach of them. The product and processes need to be completely re-engineered to meet the characteristics and preferences of the low-income market.