Nigerian Insurance Industry: Overview, Challenges In Addition To Opportunities

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Nigerian Insurance Industry: Overview, Challenges in addition to Opportunities

Despite the lingering apathy for Insurance past times the Nigerian populace, driven largely past times cultural & religious beliefs, the Industry remains resilient, recording a compounded annual growth charge per unit of measurement (CAGR) of 10.2% inwards gross premium Income (GPI) since 2012. In 2016, the Industry’s GPI grew past times an estimated 10% to ₦356 billion[1]. Growth was upheld past times the enforcement of compulsory insurance policies, especially inwards the grouping life in addition to motor insurance concern lines. However, the Industry’s surgical physical care for was dampened past times the downturn inwards Nigeria’s fortunes which had its roots at declining global unsmooth crude prices since 2014.

Life insurance concern recorded pregnant feats inwards the concluding two years on the dorsum of growth inwards annuities next the passage of the Pension Reform Act 2014 which allows pension funds direction (PFAs) transfer funds for annuity utilisation to insurance companies. The impact of this Act was especially evident inwards the 84% growth inwards life premiums inwards 2015. Nonetheless, the surgical physical care for of the life concern segment going forwards volition live on shaped past times ongoing discussions betwixt the National Pension Commission (PenCom) in addition to the National Insurance Commission (NAICOM) on the custody of annuity funds. The National Pension Commission inwards Nov 2016 released a circular requesting all life insurers providing retiree life annuity nether the Contributory Pension Scheme (CPS) to transfer all corresponding assets inwards their custody to the Pension Fund Custodian (PFC) of their pick inside a stipulated timeframe. All novel annuities purchased next the unloose of the circular are domiciled inwards dedicated accounts amongst the PFCs. Subsequently, the handling of existing retiree life annuity funds is to live on decided next the issuance of a articulation rule inwards June 2017.

The Nigerian Insurance Industry continues to tape increased claims payments every bit is typical inwards periods of recession. In 2016, cyberspace claims paid past times operators amounted to an estimated ₦100 billion ($327.9 meg @ ₦305/$), a 19% growth over the preceding year. This translated to an average loss ratio of 43.7% (FY2015: 43%). We hold off this upward trajectory to live on sustained inwards 2017 every bit the weak macroeconomic climate persists.

The Industry’s surgical physical care for continues to live on upheld past times investment income which reached an estimated ₦54.5 billion ($178.7 meg @ ₦305/$) inwards 2016 on the dorsum of favourable yields on authorities securities. In see of the tight monetary regime adopted past times the CBN which is characterized past times high involvement rates, nosotros hold off a marked growth inwards investment income every bit operators accept payoff of higher yielding authorities securities. The Nigerian fiscal marketplace is relatively small-scale in addition to nascent amongst a express publish of fiscal instruments to invest in. We believe that investment options of the Industry require to live on broadened to accept payoff of higher yielding securities spell protecting shareholder value.

Overall, the Insurance Industry’s homecoming on equity (ROE) which hovered at around 8.4% inwards 2016 (FY2015: 8.6%) is expected to weaken slightly inwards 2017 every bit the economic scheme recovers from the recession. The Industry’s depression ROE reflects its weak profitability compared to the average yield on 364-day treasury bills of 13.7% inwards 2016. In our opinion, profitability is hampered past times weak investment returns, rising maintenance & acquisition expenses every bit good every bit increasing claims.

Nonetheless, nosotros projection a stable outlook for the Nigerian Insurance Industry inwards 2017 every bit the negative impact of the recession volition live on moderated past times the positive factors. The 53% naira devaluation inwards 2016 increased the value (and later on reduced the adventure cover) of assets such every bit motor vehicles. These assets volition require to live on revalued to suit the impact of the devaluation in addition to avoid “underinsurance”. Underwriters are advising clients to increment premiums especially on motor vehicles policies in addition to nosotros believe this volition back upward growth inwards 2017. We annotation notwithstanding that weak consumer purchasing mightiness may moderate expected growth. Overall, nosotros foresee an 8% growth inwards GPI inwards 2017 on the dorsum of a in all likelihood farther devaluation in addition to a continued growth inwards the life business.

 Emerging threats amidst macroeconomic uncertainty

The Nigerian Insurance Industry, similar most other industries, is affected past times the macroeconomic environment. The downturn inwards Nigeria’s fortunes which had its roots at declining global unsmooth crude prices since 2014 has triggered changes inwards the consumption designing of insurance products inwards recent times. While contributions from the non-life concern segment cause got been on a pass upward (particularly inwards the crude & gas line), the Industry has seen increased surrenders inwards the life concern segment. The Consumer Price Index (CPI) which measures inflation rose to 18.6% inwards Dec 2016 (the highest inwards over a decade) in addition to impacted the value of long term savings. In a high inflation environment, long term savings loose value over time. As such, at an average inflation of 18.6%, ₦100 saved right away is worth exclusively ₦43 inwards v years in addition to ₦8 inwards fifteen years. This discourages savings in addition to consequently, at that spot is a preference to invest inwards high yielding securities. Rising inflation besides has a straight impact on the Industry’s operating costs which inwards plough reduces profits. In 2016, almost 28% of the Industry’s GPI was paid out every bit underwriting expenses (including acquisition in addition to maintenance costs).

Nonetheless, enormous Untapped Opportunities  With an estimated insurance penetration rate[2] 0.4% in addition to exclusively 1% of the population belongings whatever shape of insurance policy, the opportunities inwards the Nigerian marketplace are enormous. The Nigerian economic scheme is expanding in addition to novel risks are evolving, therefore a growing require for companies in addition to individuals to insure businesses in addition to protect themselves inwards the upshot of unexpected losses. By this, the economic scheme is able to rebuild in addition to recover from losses quickly. When nosotros compare the country’s insurance penetration to economies similar Republic of Kenya in addition to South Africa which boast of insurance penetrations of 2.9% in addition to 14% respectively, nosotros run across a clear lag.

In an elbow grease to ascertain the reasons behind the Industry’s depression penetration, Agusto & Co concluded a retail consumer survey on insurance inwards Jan 2017. One of our major findings was an untapped woman someone retail insurance marketplace waiting to live on served.

–          Women are increasingly becoming empowered inwards Nigeria, enabling them to brand spending decisions. About 22% of woman someone respondents from the survey earned inwards a higher house ₦10 meg ($33,000 @ ₦305/$). In addition, woman someone entrepreneurs are becoming a growing role of the existent sector every bit 24% of the woman someone respondents were self-employed in addition to managers of diverse small-scale in addition to medium sized enterprises (SMEs). This highlights the require for insurance products specified to underwrite risks involved inwards small-scale in addition to medium sized enterprises (SMEs) every bit good every bit life policies for woman someone entrepreneurs.

–          From our survey, nosotros discovered that 57% of woman someone respondents preferred straight sales agents every bit an avenue inwards purchasing insurance policies. This somewhat reflects a noesis gap every bit women would prefer to relate 1 on 1 amongst sales agents inwards club to construct trust in addition to live on given opportunities to enquire questions inwards club to deepen their agreement of insurance. This dot is buttressed past times a pregnant 72% of woman someone respondents who indicated mistrust of insurance companies in addition to policies offered every bit the argue for non subscribing to insurance policies.

–          Operators require to equip their agents to marketplace products amongst an adequate agreement of the products offered in addition to the needs of clients. Our survey revealed that 42% of respondents had non had whatever insurance products marketed to them inwards the concluding 12 months.

Agusto & Co believes that it is imperative for both operators in addition to regulators to move together to increment awareness in addition to prepare the public on the benefits of insurance. We require to accept a cue from countries similar Republic of Kenya in addition to South Africa who cause got adopted diverse strategies including the back upward of other sectors such every bit telecommunication to crusade penetration of insurance. Industry operators must live on to a greater extent than aggressive inwards their marketing approaches, offering products in addition to services that are bespoke to the Nigerian surroundings in addition to populace.

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