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Here’s what will happen to Nigeria’s insurance sector in the short to medium term

The Nigerian insurance sector is expected to grow at a subdued rate in 2020 due to the COVID-19 pandemic.

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Nigeria's Insurance Sector

The Nigerian insurance sector is expected to witness considerable growth in the medium to long term, despite an interruption in 2020 due to the COVID-19 pandemic.

In specific terms, players in the smaller life insurance segment of the market are expected to grow their collective premiums by 4.8% to N179.81 billion in 2020. This is a downwardly revised forecast due to the country’s weakened economic condition. Meanwhile, the life insurance segment is expected to grow its premiums to as much as N207.96 billion by 2024.

On the other hand, the non-life insurance segment of the market (which is significantly larger), is projected to grow its premiums by a revised 2.9% to N248.85 billion in 2020. In the medium term, growth in the non-life segment is expected to reach N321.53 billion in 2024.

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Nigeria's insurance sector

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It should, however, be noted that these projected growths are not going to come about easily, mainly due to Nigerians’ general lack of enthusiasm for insurance. According to Fitch Solutions, premiums growth will continue to be limited due to expected low average earnings by the insurance firms.

Widespread poverty was identified as a major factor making it impossible for a lot of Nigerians to access insurance covers. But then again, some wealthy Nigerian are known to avoid spending on insurance covers. This general lack of enthusiasm is known to hamper growth in the Nigerian insurance sector. The report, therefore, called for more action to be taken towards educating Nigerians about the importance/benefits of both life and non-life insurance.

READ MORE: Lagoon and Blue Ocean narratives of Nigerian Insurance sector – Report 

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“With a market supported by the country’s steady economy and large population, Nigeria’s insurance sector will enjoy a period of growth and development over the medium and long term, albeit interrupted by a slower pace of growth in 2020 due to the effects of the coronavirus pandemic. The outlook for premiums growth, however, continues to be limited due to low average earnings and widespread poverty, which will weigh on insurance affordability. As even the more affluent middle-class consumers tend to avoid purchasing insurance, which hampers the growth of compulsory basic insurance lines such as motor vehicle insurance, Nigeria’s potential consumer base needs to be educated more about the benefits of both life and non-life insurance coverage to support more robust growth in the sector.

“In spite of Nigeria’s large population, only a small proportion purchases life insurance. Life premiums currently account for 41.9% of overall insurance spending in the country. Low incomes and a lack of understanding of the benefits of life insurance remain the most important obstacles facing life insurers. However, a recovering economy, coupled with rising employment and incomes, will drive demand for life insurance products over the forecast period,” part of the report said.

In view of the competitive and regulatory landscapes, Fitch Solutions noted that the insurance sector in Nigeria is replete with mostly small players. The highly fragmented nature of the market makes it very competitive, even though only a few really command a greater percentage of the market share. In total, there are approximately 57 insurance companies in Nigeria and the report forecasted that the number may shrink in the coming years due to possible mergers/acquisitions.

Note that the National Insurance Commission, NAICOM, had recently revised its capital requirements for various segments of players in the insurance. You may keep up with that development by clicking here.

In the meantime, foreign players have been showing serious interest in the Nigerian insurance sector. A typical example is the French insurance firm – AXA which has stakes in Nigeria’s  AXA Mansard Insurance Plc. Other examples are South Africa’s Old Mutual Ltd and Sanlam Emerging Markets (Proprietary) Ltd. As Nairametrics reported, Sanlam recently took over full ownership of FBN Insurance Ltd after FBN Holdings Plc divested all its stakes in the insurance firm which used to be one of its many subsidiaries.

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Emmanuel is a professional writer and business journalist, with interests covering Banking & Finance, Mergers and Acquisitions, Corporate Profiles, Brand Communication, Fintech, and MSMEs. He initially joined Nairametrics as an all-round Business Analyst, but later began focusing on and covering the financial services sector. He has also held various leadership roles, including Senior Editor, QAQC Lead, and Deputy Managing Editor. Emmanuel holds an M.Sc in International Relations from the University of Ibadan, graduating with Distinction. He also graduated with a Second Class Honours (Upper Division) from the Department of Philosophy & Logic, University of Ibadan. If you have a scoop for him, you may contact him via his email- [email protected] You may also contact him through various social media platforms, preferably LinkedIn and Twitter.

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Financial Services

CBN reveals framework for the N75 billion Youth Investment Fund

The Nigerian Youth Investment Fund will be funded through the NIRSAL MFB window of the CBN.

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CBN reveals framework for the N75 billion Youth Investment Fund, Economic Growth, CBN, Governor, Emefiele, CBN releases new capital base, sanctions for Microfinance Banks, Nigerian Banks broadly positive after naira devaluation, Naira hits N465 to $1, Central Bank begins disbursing $100million to hit at currency speculators

The Central Bank of Nigeria (CBN) has revealed the implementation framework for the Nigerian Youth Investment Fund.

This was disclosed in a publication by the Development Finance Department under the auspices of the Central Bank of Nigeria.

The CBN stated that the Nigerian Youth Investment Fund (N-YIF) would be funded through NIRSAL MFB window, with an initial take-off seed capital of N12.5 billion.

READ: #EndSARS: FG creates new N25 billion Youth Fund, to increase to N75 billion in 3 years

The N-YIF aims to financially empower Nigerian youths to generate at least 500,000 jobs between 2020 and 2023.

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Objectives of the scheme:

  •  Improve access to finance for youths and youth-owned enterprises for national development.
  •  Generate much-needed employment opportunities to curb youth restiveness.
  •  Boost the managerial capacity of the youths, and develop their potentials to become the future large corporate organizations.

Explore Data on the Nairametrics Research Website

What you should know
Recall that on the 22nd of July, 2020, the Federal Executive Council (FEC) approved the sum of N75 billion for the establishment of the Nigeria Youth Investment Fund for the period of 2020 – 2023.
The fund was created to support the innovative ideas, skills and talents of Nigerian youths, and to institutionally provide Nigerian youths with a special window for accessing much-needed funds, finances, business management skills and other inputs critical for sustainable enterprise development.
  • The fund targets young people between the ages of 18 and 35 years.
  • Beneficiaries of NMFB, TCF and AgSMEIS loans, and other government loan schemes that remain unpaid are also not eligible to participate.
  • Individuals (unregistered businesses) shall be determined based on activity/nature of projects subject to the maximum of N250,000.
  • Registered businesses (Business name, Limited Liability, Cooperative, Commodity Association) shall be determined by activity/nature of projects subject to the maximum of N3.0 million (including working capital).
  • The tenor of the intervention is for a Maximum of 5 years, depending on the nature of the business and the assets acquired, of which interest rate of not more than 5% under the intervention shall be charged annually.
  • The Federal Ministry of Youth and Sports Development (FMYSD) will collaborate with relevant stakeholders to identify potential training for training/mentoring.
  • The youths that are duly screened (and undergo the mandatory training where applicable) shall be advised to login to the portal provided by the NMFB to apply for the facility.

READ: CBN raises alarm over fraudulent loan offers, investment schemes with charged fees

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Optics
As a huge percentage of youths are engaged in the informal sector, the NYIF will facilitate the transition of informal enterprises owned by youths into the formal mainstream economy, where they can be supported comprehensively, build a bankable track record, and be accurately captured as active participants in economic development.

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Financial Services

CBN to drive implementation of zero balance account opening in banks

The CBN has urged the DMBs to allow zero balance for the opening of new accounts.

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CBN Vs NESG: Waving the white flag for the benefit of Nigerians, Exchange Rate Unification: CBN devalues official rate to N380/$1, Nigerian banks have written off N1.9 trillion impaired loans in past 4 years, CBN sandbox operations, Stirling Trust Company Limited

The Central Bank of Nigeria (CBN) has urged the Deposit Money Banks (DMBs) to allow zero balance for the opening of new accounts, as part of the efforts to promote greater financial inclusion across the country.

In addition, the banks are also expected to simplify their account opening processes, while adhering to Know-Your-Customer (KYC) requirements in the push towards financial inclusion.

READ: This is where PSB, CBN got it all wrong

READ: CRR: Banks suffer N917.5 billion debits in latest CBN action

This disclosure was made in the Monetary, Credit, Foreign Trade and Exchange Policy Guidelines for 2020/2021 fiscal year, which was issued by the Central Bank of Nigeria (CBN).

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While stating that these measures are part of the efforts to encourage banks to intensify deposit mobilization during the 2020/2021 fiscal years, the apex bank also encouraged banks to develop new products that would provide greater access to credit.

READ: Nigeria @ 60: The Banking Sector and the Nigerian economy 

A part of the report reads, “As part of its effort towards promoting greater financial inclusion in the country, the bank shall continue to encourage banks to intensify deposit mobilization during the 2020/2021 fiscal years. Accordingly, banks shall allow zero balances for opening new bank accounts and simplify their account opening processes, while adhering to Know-Your-Customer requirements.

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READ: Lagos Rail Mass Transit: House of Assembly approves N153 billion for construction

“Banks are also encouraged to develop new products that would provide greater access to credit.”

In addition, the apex bank said that the Shared Agency Network Expansion Facility (SANEF), which was established to enhance the provision of financial services access points in under-served and unserved locations and drive financial inclusion through agent banking, would continue in the 2020/2021 fiscal years.

READ: CBN launches framework for advancing women’s financial inclusion in Nigeria

It states that banks, mobile money operators, and super-agents would continue to render returns in the prescribed formats and frequency to the CBN.

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Exclusives

CRR: Banks suffer N917.5 billion debits in latest CBN action

The central bank debited Nigerian banks N917.5 billion last week in its latest CRR action.

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CRR: Banks suffer N917.5 billion debits in latest CBN action

Nigerian banks suffered a total of N917.5 billion in new CRR debits from the Central Bank of Nigeria. Reliable sources inform Nairalytics Research that the latest debits occurred in the week ended October 23rd, 2020.

The cash reserve requirement is the minimum amount banks are expected to leave retained with the Central Bank of Nigeria from customer deposits. In January, the CRR was increased by 5% to 27.5% by the CBN Monetary Policy Committee (MPC) who explained that the decision was intended to address monetary-induced inflation whilst retaining the benefits from the CBN’s LDR policy.

READ: CBN says 17 banks to restructure over 32,000 loans

CRR Debits for Nigerian Banks.
Nairalytics Data

READ: Union Bank suffers N188 billion in CRR debits as at June 2020

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From the data, Zenith Bank topped the list with N285 billion followed by UBA with N160 billion. The rest of the FUGAZ, Access, FBN, and GTB were debited N140 billion, N95 billion, and GTB N55 billion respectively. The FUGAZ also suffered a N1.9 trillion debit in CRR sequesters in the second quarter of 2020 (April – June) alone.

READ: Nigeria’s forex devaluation timeline – 2020

Nigeria’s central bank has since 2019 debited Nigerian banks a chunk of their deposits as part of a mutually inclusive cash reserve requirement (CRR) and Loan to Deposit Ratio policy that is targeted at coercing banks to lend more to the private sector.

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READ: CBN reviews minimum interest rates on savings deposit to 1.25%

Last month, Nairametrics reported that the CBN now holds a total of N6.57 trillion in CRR debits from the nation’s top 5 banks a whopping 43% higher than the N4.58 trillion held in March and more than double the N3.5 trillion CRR debits as of December 2020. CRR debits in the third quarter of 2020 will be revealed when banks release their results in the coming days and weeks.

READ: Nigeria’s telecom sector posts double digit growth of 18.1%, manufacturing, others contract

Meffynomincs: CBN under the leadership of Godwin Emefiele has deployed several heterodox policies as it strives to stimulate the economy and manage the exchange rate crisis in the absence of strong fiscal support.

  • Interest rates on fixed deposits and money market instruments have fallen to single digits despite the galloping inflation rate.
  • Last month, the CBN monetary policy committee admitted it was no longer combating inflation but will direct its policies towards stimulating lending to the private sector hoping this will spur local production.
  • This policy has placed banks in the crosshairs with the Apex bank exposing them to CRR debits if they cannot use customer deposits to spur lending.

 

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