A recent report by Coronation Research has rated insurance penetration in Nigeria at 0.31%, which is extremely low, even compared with countries with similar Gross Domestic Product per capita like India, with insurance penetration at 3.69%.
Experience in other countries shows that, in the right conditions, insurance in Nigeria can be rolled out to India’s level in eight to 10 years. So Nigeria could go from 0.31% penetration to 3.69% penetration in 10 years.
The Lagoon story
Nigeria’s insurance industry has not shared in the growth experienced by other Nigerian financial services, notably banks, pension funds and mutual funds. In fact, it has hardly grown in real terms over 10 years. Without scale, the industry suffers from poor returns on equity.
The analysts believe that its smallness is also its opportunity. If it were to grow to the level reached by countries with similar GDP per capita, it might grow by a factor of 10 times in real terms in eight-to-10 years. The technological infrastructure and data necessary for expansion are largely available.
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The new capital requirements race
The banking reforms of 2004 imposed new steep capital requirements and reduced the number of banks from 89 to 25. Insurance reforms in 2019, due for implementation by June 2020, also impose steep new capital requirements.
According to Coronation Research, the industry players are likely to reduce from 59 to about 25. Higher capitalisation increases underwriting capacity and the potential exists to roll out a much bigger industry than currently exists.
Now, the Blue Ocean route
Lessons learned in Asian markets, and also in West Africa, show how insurance can be rolled out to tens of millions of customers. Cooperation between regulators is critical, as are distribution partnerships with banks and telecom companies. Fresh capital is necessary for development, but a fresh strategic approach is required to reach the industry’s potential.
So far, Nigeria’s insurance industry has lagged behind other financial services. Conditions have not been helpful for growth. Experience from other markets, particularly in Asia, suggest three remedies.
First, government and regulators (not only insurance regulators but bank and telecom regulators, too) need to cooperate – there are gains for all. Second, the roll-out of micro-insurance, with the development aim of financial inclusion, is key to familiarising and educating the market. Third, technology plays a key role in partnerships and distribution.
But is the technology available?
The distribution channels for rolling out insurance in Nigeria are available in Nigeria already but have not been deployed yet. In recent years the issuing of bank verification numbers (BVN) and SIM card registration have created significant levels of personal data.
Already, in Lagos, traffic police use number-plate recognition to check motor insurance cover. Whereas some Nigerian insurance companies are set up to process tens of thousands of customers, the technological platforms and the customer data exist to service tens of millions.
NAICOM’s reforms address an industry that today is small, fragmented and not very profitable. In inflation-adjusted terms, and in US dollar terms, it has barely grown over the past ten years. Of course, it could continue to stagnate in the years to come but that would:
- be a waste of the capital being raised to meet the current regulatory initiative;
- frustrate the experience of strategic investors (domestic and foreign);
- leave existing technology unused; and
- allow Nigeria to fall further behind its peers. On the other hand, given fresh capital and renewed regulatory cooperation, the industry can leave the stagnant lagoon and make waves in the blue ocean.
Recent pockets of growth
While it is correct to say that the development of the industry has been essentially flat over the past 10 years, this view needs to be refined.
First, it is clear that the Life Insurance business was growing in real terms 2008-15 (see the beginning of this section). This reflected the take-up of group life policies by companies in the formal sector.
Second, the recent period 2016-18 has seen some growth in real terms, though it came after a significant contraction in business in 2016.
Third, the part of the industry which is expanding in real terms likely reflects gains in market share by the leading companies from the less successful companies, some of which have serious issues. In other words, a process of competitive selection during and after the recession of 2016-17 may be underway already.
Recovery, rather than growth, among Non-Life insurers
While the Composite Insurers have shown a degree of recent growth, the leading group of 10 Non-Life Insurers has not done so well. Collectively these companies experienced a significant fall in business at the onset of the 2016-17 recession and have only begun to slowly climb out of it.
In inflation-adjusted terms, Gross Premium Income fell by 18.7% in 2016, then rose by 3.3% in 2017 and by 4.4 % in 2018.
Asian countries and Ghana demonstrate how to grow
Where can the Nigerian insurance industry look to for examples of successful growth? In any survey of the global insurance industry, Asia stands out for its recent gains in insurance take-up. To a large extent, this has happened because Asian governments have prioritised the development of micro-insurance and demanded cooperation from regulators and insurance companies to achieve their objectives.
In Asian countries, where micro-insurance has been rolled out, the insurance industry as a whole has benefitted from the familiarisation process that micro-insurance brings. As a result, insurance penetration and density have risen quickly, as we shall see in this section. Levels of insurance take-up are now many times what they are in Nigeria.
Key case studies come from Malaysia, Philippines and India. We have garnered data from India and present it here.
An answer closer to home than Asia
One need not go as far as Asia. Ghana is an example of a country where micro-insurance take-up has risen from almost nothing to 28% of the population over a period of eight years. If Ghana’s experience could be replicated in Nigeria the effect would be revolutionary.
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Will the multi-nationals bring their experience to Nigeria?
An important point about the Asian experience is that the same companies that cite Asia as a core geography for growth are the ones that have acquired insurance companies in Nigeria.
What it means: For example, Axa and Allianz. Axa bought Mansard Insurance in 2014 and Allianz bought Ensure in 2018. Other global insurers present in Nigeria are Prudential in its partnership with Zenith Life Insurance and Sanlam with FBN Insurance, as well as Saham of Morocco with Saham Unitrust.
Therefore, the experience of Asia’s roll-out of micro-insurance is familiar to the shareholders and management of several Nigerian insurance companies. There is no doubt that they could put their experience to use in Nigeria; the question is whether the legislative and regulatory environment will allow them to achieve this.
Micro-insurance roll-out and partnerships with other industries
In Asia, there are two conditions that spur the roll-out of insurance. The first is that governments sponsor the roll-out of micro-insurance and work to ensure that regulators work together.
What it means: This means bringing central banks, insurance regulators and telecom regulators together to pursue the common objective of developing the insurance industry.
The second is that the roll-out of micro-insurance provides education, mass-awareness and initial market penetration which the insurance industry requires.
What it means: The initial micro-insurance roll-out involves partnerships that can be with banks (bancassurance), or with telecom companies, or with government institutions. Even if insurance renewal data suggest that traditional insurance company outlets remain the main points of sale, it is partnerships that get the ball rolling by giving insurers access to the mass market in the first place.