The federal government has focused its attention on the insurance industry to reposition the sector for improved growth. The Minister of Finance, Mrs. Kemi Adeosun announced the government’s determination to lead reform in the industry for a vibrant Nigeria insurance market.
The Minister in her opening remarks at the 2016 National Insurance Conference in Abuja, explained that a developed and active insurance market would bring about increase in GDP, accumulation of long-term funds for infrastructural financing, job creation, and an improved standard of living. She added that the development would also attract foreign investment into our country.
Speaking on the ongoing efforts of industry stakeholders to reposition the insurance industry for growth, the Minister said the Federal Government was ready to lend its support, saying, “There is a need to immediately address the decline in the Nigerian insurance industry as it is lagging behind globally and among its African peers. Despite being the largest economy in Africa, the Nigerian insurance industry remains largely underdeveloped.
The industry has under-performed the Banking sector and even the recently established Pensions sector.” Emphasising the resolve of the Federal Government to stimulate extra-ordinary growth and unleash the potential of the insurance industry in Nigeria, the Minister listed some factors necessary for the change. These, among others include the needs to: “Recognise our true stage of development- we are an industry that despite its age remains in its infancy. This means that Government must act as a nurturer and incubator of the industry.
We have also seen the success of the pension fund industry as a text book example of where government policy set clear parameters for participation, led by example and enforced legal obligations. If we are to use the Pension fund success story as a template for the Insurance Industry, then we can jointly identify the required road map. She also stressed the need to strengthen the capital base of insurance companies.
She recalled that in 1981, the minimum capital requirement for banks was N1million while that of composite insurance companies was N0.8 million. By 2014 Banks had grown theirs to N25 billion and Composite Insurance Companies to N5 billion showing that Banks had grown capital requirements 8x faster. The industry needs to recapitalise. Capital levels were last raised in 2007.
To take true advantage of the opportunity for the industry we must recapitalise and reposition. The top 3 banks have capital in excess of N300 billion each! The top 3 insurers have capital of between N14 billion to N25 billion. “The insurance sector needs to raise minimum capital requirements in a manner that is comparative to what happened to the banking sector in the last two to three decades. Increased capital will provide funding for publicity and product development.
It will raise the clout of insurance companies in policy formulation and will enhance our capacity to hire the best people and deploy the technology and marketing, product awareness and investment needed to support the industry.” According to her, “The current administration firmly believes that the economy has only one direction to move in and that is upwards as true change means doing things differently with the full expectation of different outcomes. “Our confidence in the future of our economy is not based on the statistics that have consistently detailed its potential but rather the deliberate policies and actions that will ensure a robust and sustainable recovery.”
“Our economic focus is built on pursuing a disciplined approach to our financial management, reducing the cost of governance and increasing its impact. This is being attained by efforts to maximise revenues and minimise leakages through corruption, waste and inefficiency, she added. The Minister further stated, “This will release the headroom needed to fund our essential infrastructure, which will in turn lead to the increased growth of the non-oil sector and a more diversified revenue base.
Our days of reliance on oil as a principal source of revenue must be put firmly in our nation’s economic history. That process of adjustment is painful but like “’ good medicine” is the only effective cure.” She said a key element of the enabling environment is the de-risking provided by the insurance industry. Quoting NIA sources, the Minister said that Nigeria with a penetration of 0.3% recorded total industry Gross Written Premium (GPW) of N350 billion in 2015. “If we collectively set a 7-year target of achieving Africa’s average penetration of 3.5%, we can transform our industry into one with GWP of N4.5 trillion by 2023.
To achieve this, the industry will have to grow at a Compound Annual Growth Rate (CAGR) of 44% from 2017 to 2023. Adeosun said, “We are committed to growing a strong and resilient insurance sector, which will contribute better to the Gross Domestic Product. Government will impose insurance and I will enforce insurance in the Ministry of Finance and in everything we are doing. She warned underwriters to desist from discounting premium, a development that makes them to charge ridiculous rates, especially in the public sector, adding that this practice was unhealthy for the sector.
To stop the practice of charging very low rates, the minister said she was working with the insurance regulator to eliminate rate cutting and create an eligible pool that would give everyone a fair share of the government’s underwriting business. She also stressed the need to address the annual review of brokers’ licences, adding that it was necessary to ensure the existence of the brokers in order to boost the confidence of the insuring public in them.
This is in no way an impossible target and in fact represents the type of ambitious objectives we need to set for ourselves as several sectors in Nigeria including Telecoms, Banking and Pensions Management have been able to record such impressive growth through the collective support of all stakeholders. It is also consistent with the Change mandate of His Excellency President Muhammadu Buhari. We have no reason to be different.”
She reiterated the need to act urgently, as the development of the Nigerian insurance industry will come with other attendant benefits that are critical to achieve the type of growth and change for the economy and for the large number of Nigerians who have been deprived of the financial stability, protection and business growth that developed insurance markets have provided for their citizens for centuries.
The Commissioner for Insurance, Alhaji Mohammed Kari who was apparently glad that the industry kept faith with the mega conference while he highlighted some if the achievements of the sector in recent times to include Improve on service delivery; Work on the image of the Industry; Increase Insurance awareness; Improve consultation between the regulator and regulated; Assist in the creating national wealth and employment and Improve market penetration, among others.
The Commission, he insisted, has continued to provide regulatory oversight for the industry in relevant areas through the issuance of guidelines, training and the creation of the enabling regulations to introduce new classes Insurances to address the financially disadvantaged in our society. “To address the medium and long term challenges of penetration, the Commission is on the verge of relaunching the Market Development and Restructuring Initiative (MDRI).
The Initiative originally launched in 2009 is being reviewed for the immediate impact we believe it will provide. “We believe if properly implemented it will bring the desired result as envisaged. This effort has further been boosted by the following of recent: The just concluded review of the draft Insurance bill by the Ministerial committee setup by the Honourable Minister of Finance; the Presidential directive on Insurance of Government assets; the Senate resolution supporting the enforcement of Compulsory classes of Insurance across the country; the Insurance Industry’s resolve to rebrand itself and the desire to create more distribution channels The Commissioner continued by saying that the efforts of the market need to continue to be supported by the Government and the Legislature.
Government need to ensure the adequate protection of public assets and the timely funding of such, and the legislature need to increase their oversight function of the activities of the sector including passing the approraite legislation when required.
Some of the benefits of the uniformity of the mega conference were quite obvious at the 2016 event in Abuja as the Minister of Power, Works and Housing, Mr Babatunde Raji Fashola threw his mega ministry behind the sector to demand for com lance of Workmen’s Compensation from contractors to help insurance enforce the act while the the Acting Managing Director/ CEO Bank of Industry, Mr Waheed Olagunju has enlisted 10 insurance companies to parter with on insurance of lending risks. This Olagunju assured through the National Insurance Commission (NAICOM).
In the same vein, the chairman of Insurance Industry Consultative Council (IICC) Mrs Isioma Chukwuma who regretted that the enormous potentials in the sector have been stultified, among others, by lack of intra industry cohesion as she believed that the unified Conference would present the industry as a holistic sector, as well as enhance its image in the eyes of the various strategic publics and stakeholders. “We are living witnesses of the various efforts being made by the present administration to take our national economy out of the doldrums through the annexation of all latent national resources. This effort definitely calls for the support of all strategic stakeholders.