Recently, news broke on the new capitalisation requirements by the National Insurance Commission (NAICOM) for insurance companies. Under the risk based capitalisation requirements will see life, non-life and composite insurance companies have their capital base divided into three tiers.
This has led to a lot of companies exploring means to meet up with these requirements, such as through mergers, acquisitions, and rights issues.
Here are the major benefits of the insurance industry recapitalisation:
Emergence of Bigger and Stronger Insurance Companies
The insurance industry is a key component of any financial system, but unlike the banking industry in Nigeria, which has seen major growth since the last recapitalisation in 2005, the insurance industry has lagged behind.
Some of the problems bedeviling the industry include the following:
- Lack of awareness – out of the 57 Insurance companies in Nigeria, only about 23 advertise their products.
- Existence of small players – most of the fraud being perpetrated in the industry is caused by fringe players who are not hesitant to make quick money and swindle innocent policyholders of their hard earned money.
- Poor asset quality of companies – low premiums received by these companies mean the inability to invest in quality assets which will help generate income.
- Lack of innovation in product development.
With recapitalisation of the industry and more capital to play around with, the management of insurance companies will invest heavily in the above listed areas, which will result in the ability of companies to underwrite bigger risks e.g. in oil and gas, improve settlement of claims and sensitise the public through continuous marketing on the need to buy more insurance policies.
Just like the Nigerian banking industry recapitalisation, which has created bigger banks, recapitalisation of the insurance industry will ensure enhanced capacity and restoration of public confidence and enhancement of international competitiveness.
More Innovative Products through development in ICT
A recapitalised insurance industry will enable companies deploy more capital to improvement in technology, which will help challenge the traditional ways of buying and underwriting insurance, and replace them with newer, faster and more reliable ways of insuring life, goods and property.
Today, technology is at the heart of every industry, and if properly deployed, it will help create opportunities that are both exciting and convenient for customers. If technology is properly deployed by Nigerian insurers, it will enable them transform data provided by potential customers into actionable insights that will help properly assess individual risks, rather than relying solely on information provided by customers.
In Kenya for example, a number of insurers have apps for clients. Jubilee Insurance launched JubiCare and JubiAgent, the apps that allow self-service using smartphones. Jubilee also integrated Artificial Intelligence into their Facebook Page through the use of a chatbot called Julie, its ‘Live Intelligent Expert’ that answers queries. This ensures faster and efficient delivery.
In summary the benefits of improved technology for insurance companies will be:
- Help generate new businesses, thereby increasing premium income.
- Reduce overhead costs and improve efficiency.
- Increase the Return on Investment (ROI) of insurance companies.
Positive Effect on the Nigerian Economy
Due to the nature of the insurance business, which is to provide cover in the event of any loss, insurance companies are vital to any economy because disasters are inevitable.
A recapitalised industry and the emergence of stronger and financially stable players will help stimulate business activities by increasing market penetration and also provide an indirect source of motivation and innovation for individuals and small businesses who know they are covered in the event of any loss.
The Minister of Finance, Mrs. Kemi Adeosun said in 2016 at a conference organised by the Insurance Industry Consultative Council that a 0.33% increase in penetration can result to a growth of 0.5% in GDP and the possibility of creating over 70,000 jobs.