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Nigeria 2017 | FINANCE | REVIEW: INSURANCE

Ambitious goals to increase insurance penetration rates, raise awareness, and expand the value of the sector are propelling Nigeria forward into 2017.

Nigeria's insurance industry has a target to reach a value of USD50 billion by the year 2020, a goal that experts say is feasible as long as operators take full advantage of the country's potential. If the target is achieved, employment in the insurance sector would grow from 10,000 to over 300,000 jobs, as well as boost the insurance share of GDP from less than 1% to over 10%. Currently, the total income generated from premiums in 2016 is reaching approximately USD793 million, bouncing back from a distinct drop in subscriptions alongside economic recession and falling oil prices.

The sector is regulated by the Nigerian Insurers Association (NIA) and the National Insurance Commission (NAICOM). In 2016, there were 31 general insurance policy providers, 15 life insurance providers, 60 underwriters, and 14 composite firms, offering both general and life insurance, operating in the country.
Although Nigerian law mandates that insurers cover 70% of the oil and gas industry, only between 25 and 40% of premiums were being written for the sector locally in 1H2016. Meanwhile, only 25% of automobiles on the road—or 4 million out of 16 million—possess genuine motor insurance policies. By some estimates, the insurance industry has lost over USD750 million in income over the past 16 years from non-insured motorcycles, mopeds, and other vehicles on the roads, a situation the government and private sector are aiming to rectify.

In coming years, Nigeria's growing population of over 170 million and increased government regulation are set to spark much-needed growth in the insurance sector. Through increasing penetration rates and raising awareness about the need for insurance, a lucrative and sustainable insurance sector is likely to emerge in Nigeria's near future.

REGULATORS

NAICOM, an entity that advises the Nigerian government on the insurance sector, is at the forefront when it comes to increasing penetration throughout the country. NAICOM has spearheaded new distribution agencies that employ a team of people known as “referral partners" or “agents" who are tasked with deepening insurance penetration through filling in the gap between the latest products and their potential customers. According to NAICOM, the program will be operated both by individual insurance experts and regulated corporate entities. NAICOM has also supported the industry with strict enforcement on behalf of operators: no premiums means no coverage. Whereas insurers used to find themselves with outstanding premiums left unpaid, today many insurance companies benefit from profit that can be used to invest and contribute to the wider economy. The regulator also devised a roundtable forum, or insurance committee, comprised of all of the leaders in the local industry. Therefore, insurance companies meet regularly with NAICOM to exchange information and brainstorm ways to move the industry forward. Having a regulator that engages the local operators and offers an open communication line allows companies to work hand-in-hand in such a way that is unprecedented in many other countries around the world, let alone the African continent.

However, some believe that the government could still do more to help to expand the market. For example, making insurance a requirement prior to obtaining certain licenses, accessing certain loans, or providing services is seen as an organic way of injecting strength into the sector.

As the largest buyer of insurance in Nigeria, the government also has the opportunity to become both a case study and a role model for state and local legislators.

Although the government has advised that underwriters should establish set rates for their services, no set rates have been established as of yet. However, underwriters will be required to submit their rates at the end of each year going forward, with 2016 being the first year rates are expected to be quoted. Once quoted, underwriters will be required to quote the same rates in any new business they are involved in. However, Nigerian insurance companies continue to use the “one-price-fits-all" model, which experts argue does not allow room for much-needed differentiation in pricing models. In a recent interview with All Africa, Eddi Efekoha, Chairman of NIA, emphasized that price differentiation would benefit the sector at large.

OPERATORS

Navigating the legislation and regulation is one aspect of operating an insurance company in Nigeria, but the significant opportunities that exist are enough to attract and maintain interest.

Established in 1978, the Nigeria Reinsurance Corporation is one of the oldest companies in the local insurance sector. After surviving dramatic legislative changes in 2008 and setting itself apart from the competition in the market at that time, the company is making a comeback and working to regain more of the market share.

And having operated in the sector for over six decades, Law Union & Rock Insurance has gone from writing life and non-life insurance to now covering everything from property and liability insurance to personal accident insurance. Bearing in mind that less than 10% of the Nigerian population is insured, Law Union & Rock Insurance looks to retail banking as a way to both expand its business and increase penetration nationwide. “We are looking for ways to expand this market through new products and by educating the public about how insurance can benefit them," Jide Orimolade, Managing Director and CEO of Law Union & Rock Insurance, told TBY. “Given the sizable population Nigeria has, even a rise in insurance penetration levels from 10% up to 25% would bring a considerable amount of money into the insurance industry in terms of new business." In 2016, Law Union & Rock Insurance reached a milestone of 200,000 customers, with retail and corporate comprising 80 and 20% of its business, respectively. The company has sought innovative techniques to bridge the gap between the uninsured and the products on offer. By simplifying the process of evaluating how much coverage a customer might need, Law Union & Rock Insurance devised a “scratch card" that comes with a pin number, which is then used to access an insurance certificate directly from a mobile device. The company also allows customers to browse and purchase new insurance products from its website. In the future, Nigerians will have even more options for seeking out and buying insurance coverage as both private and public sector operators join forces to bring more products to more people.