Insurance companies quoted on the floor of the exchange are in a slow growth as half year premium remained stagnant despite regulators concerted efforts to increase penetration in an environment plagued by economic slowdown. As we delve into the last quarter of the fiscal year and await third quarter results of most Insurance companies we ponder of the several challenges and opportunities facing the industry. An industry that many had predicted will boom after years of reform is currently hanging in the balance.
Dark clouds
- The cumulative net premium income (NPI) of 16 companies that have released half year results reduced by 1.30 percent to N49.60 billion, from N50.25 billion in the same period of the corresponding year 2014.
- The most hit were AIICO, with a 36.70 percent drop in NPI, whilst Consolidated Hallmark had (32.01 percent), UnitedKapital (23.72 percent), Sovereign Trust (13.32 percent), and Prestige (39.60 percent) drop in NPI respectively.
- Africa’s largest economy will find it difficult to increase premium penetration in an economy where consumer wallets are pressured as a result of rising inflation. The erosion of the discretionary consumer spending means more people will have less money to take on insurance cover.
- Nigeria’s consumer inflation was at 9.4 percent year-on-year in September, up 0.1 percentage points from August, and staying above the central bank’s target upper limit, the national bureau of statistics said on Wednesday.
- Also, lack of education on the importance of an insurance policy, high unemployment rate and superstitious beliefs by some people who taking a life policy is a premonition of deaths undermines regulators drive to increase insurance penetration in a country with a huge population of 170 million people.
- For instance, in the north part of the country, taking a life policy is considered Haram (Abomination). While Nigeria insurers are facing threat to growth, emerging markets are thriving despite economic slowdown.
- Nairametrics data showed the 16 insurers recorded a 29.53 percent decline in profit after tax (PAT) in June 2015 as against N7.80 billion last year. 7 of the 16 firms have not utilized the resources of shareholders in generating higher profit as they recorded negative return on equity (ROE).
- Underwriting profit dipped by as much as -6.6 percent to N18.26 billion.
- The struggle facing insurers is reflecting on their share price as most remained stuck at N0.50 or par value for up to 2 to 3 years.
Silver Lining
- Premium income for the Life Insurance and Reinsurance company may however improve as regulators enforce rules requiring companies with at least five workers to provide life coverage.
- The National Insurance Commission is also making property insurance mandatory.
- The regulator’s No Premium No Cover policy is also expected to deepen penetration.
- Nigeria’s insurance less than one percent contribution to an economy of $510 billion is poor when compared to more than 15 percent contribution of South Africa’s insurance sector to its GDP.
At $72.4 billion, insurance premiums across Africa accounted for a little more than 3 percent of the world market, which in 2013 recorded premium income of more than $2 trillion. Kenya’s insurance market generated $1.5 billion of insurance premiums in 2013, contributing 3.4 percent to its $53 billion GDP.
