Insurance business in Nigeria since inception had a chequered history due to Nigerians’ alienation to the industry. Indeed the industry has suffered the worst neglect and poor patronage, as it always ranks last in the scale of preference of an average Nigerian.
This negative attitude of Nigerians towards insurance, which resulted in underdeveloped fortunes of the industry could be blamed on the way and manner early practitioners of the industry conducted their businesses as well as the position of Nigeria, from under developed to developing economy since independence among other economies.
The Nigeria insurance industry when compared with a country like United kingdom from where Nigeria drew its insurance experience has remained a toddler as 55 years after independence, its contributions to the national economy is still as low as 0.6 percent.
The reason for the industry’s backwardness is this: Before independence, precisely from 1958 down, insurance business in Nigeria was foreign oriented.
The business was conducted and patronised by British colonial masters, who worked and owned all the existing insurance firms in the country then with few Nigerans employed as Clarks.
It was not until 1958 that the first indigenous insurance company, the African Insurance Company Limited, was established. At independence in 1960, only four out of the 25 existing insurance firms were indigenous. This included the Royal Exchange Assurance, which was the offshoot of the historical Royal Niger Company.
But by 1976, the number of indigenous insurance firms began to grow and by far surpassed that of the foreign companies.
But one remarkable thing that followed the growth of indigenous firms and change of leadership and management baton in the industry from the colonial managers to indigenous managers was the erosion of public confidence in the industry occasioned by inability of the managers to pay claims as a result of low capital base and poor regulation.
Indeed, this portrayed the industry in a very bad light and left a remarkable dent on its image even up to the present day as the operators are still struggling to redeem the image.
From independence until few years back, the insurance industry has suffered negative factors such as low level awareness, poor MARKET penetration, low operating capital, as well as low retention capacity for capital intensive but juicy businesses like oil and gas and aviation insurance businesses.
Against this backdrop, high level of capital flight was prevalent in the industry then as big businesses of oil multinationals were taken to their captive firms while the small ones were insured in Nigeria. As a result, the contribution of the industry to the gross domestic product of the economy remained very low while government’s regard for the industry was also very low.
Action by government
But few years later, government stepped up action on regulation in the industry. The first major step was the report of Obande. J C. commission of 1961, which led to establishment of the department of Insurance in the ministry of trade, which was later transferred to the Ministry of Finance. The report also led to the enactment of Insurance Companies Act of 1961, which came into effect on May 4, 1967. By the provisions of the Act, the office of the Registrar of Insurance was created to supervise insurance practice. Other provisions of the Act included minimum capital requirement and other conditions for registration, monitoring, and control of insurance operation generally. This was followed by a series of legislation, which sought to further the cause of insurance regulation in the country. The first major attempt at regulating insurance in the country was the promulgation of the Nigerian Insurance Decree, 1976.
Despite this, the industry was still jettisoned by every Tom, Dick and Harry in the country as only very few Nigerians want to buy insurance, work in an insurance company or want to have anything to do with the industry.
Academically, hardly can you see any Nigerian student that wants to register insurance as a course of study in Nigerian universities. For the very few institutions that offer insurance as a discipline like the University of Lagos and Lagos State Polytechnic, getting resource persons to teach the available few students was a big problem. The situation made Nigerians to be backwards in knowledge and understanding of insurance. This is despite the important role played by insurance in every country.
Place of Insurance in democratic regime
Today, though the trend is changing, the industry is still bedeviled with a lot of challenges especially those mentioned above. Among these challenges, poor patronage of the industry remained very big challenge to the operators and they have remained the bane of the industry’s growth.
Transition from military regime to democratic regime in the country in 1999 raised great hope to the industry practitioners as they happily welcomed the regime with hope of better business opportunities.
Indeed, insurance managers among other economy operators in the country ushered in the democratic dispensation with high hopes, prospecting that laws that would boost insurance patronage would be put in place by government.
But even with the ushering in of democracy, the insurance industry remained a toddler for several years mainly due to low capital base as the capital base of operating firms was ridiculous when compared with those of their counterparts in other sectors of the economy or with capital base of banks.
With the enthronement of democracy in 1999, the operators and the regulatory body determined to address the capital base problem of the industry by embarking on series of recapitalisation and consolidation exercise.
The federal government through the then Chief executive officer of the industry regulatory body, the National Insurance Commission (NAICOM), Chief Oladipo Bailey carried out a major recapitalisation exercise that shook the entire industry, throwing many out of business while compelling others to expand their financial coast for a more robust business operation.
The exercise raised the industry’s capital from N 20 million to N70 million for those into general business, N50 million for life underwriters and N90 million for Reinsurance companies.
The exercise raised dust in the industry leading to litigations in the court but at last the crisis was resolved and operators complied by sourcing capital up to the minimum amount.
After the 1999 exercise, came another bomb shell of recapitalisation thrown up by Emmanuel Chukwulozie, Bailey’s successor.
His own exercise lasted between 2005 and 2007.This saw the raising up of the minimum capital base of the industry from N 50 million to N150 million; for life companies, from N7O million to N200 million and general business underwriters, from N90 million to N300 million for composite companies. Reinsurers were also asked to raise their capital to N350 million.
Expectedly, the exercise again raised dust, which was later doused by the regulator.
After this came another round of recapitalisation that carried along the biggest confusion and litigations that brought activities in the industry to a stand still for almost two years.
The exercise was carried out by Chukwulozie too.
After a long drawn battle that lasted for 26 months the exercise was declared an illegal one by the Federal High Court in Abuja on the ground that the Federal Ministry of Finance and the National Insurance Commission do not have the power to raise the minimum capitalisation of insurance companies without recourse to the National Assembly and having done so, ran foul of relevant provisions of the Insurance Act, 2003.
With this, the number of operators in the industry reverts to the pre-February 2008, 2007 era of 103 underwriting and four reinsurance companies.
The cancellation, which threw the entire industry into a big confusion raised questions such as how do the companies start all over again? How will the merged entities commence separation? Will the acquired companies break out again? Did all the operators not know that Section 9 (1) of the Insurance Act needs to be amended before embarking on recapitalisation? How soon can the CBN return all the monies kept in the escrow account? Is NAICOM capable of returning all fees collected in respect of the illegal capitalisation? All these and so many more remained unanswered.
Indeed the 2007 consolidation exercise will forever remain historical in the industry as the industry suffered serious stagnation the effect of which is still telling on the operations of many firms today.
One negative impact of it is that the insurers’ money in the Escrow Account of CBN was left idle for the whole of the period as activities in the entire industry came to a halt. After this long drawn battle, the immediate past commissioner for Insurance Mr. Fola Daniel was appointed to relieve Chukwulozie of his job as the commissioner for insurance while the industry’s capital was increased to the present level of N2 billion for life underwriting firms, N3 billion for general business underwriters, N5 billion for composite firms and N10 billion for reinsurers. At present, operators have resorted to self-regulation as many insurance firms now have capital in excess of N15 billion.
The MDRI Initiative
Having secured enough capital, the regulatory body resolved to face the challenge of deepening insurance penetration in the country to raise the industry premium. NAICOM captured this in what it called MARKET Development and Restructuring initiative (MDRI), which it launched in 2009.
The initiative has objectives of transforming the industry from N160 billion naira premium income to a trillion Naira industry. This, the commission said, would be done through the enforcement of compulsory insurances. It listed five compulsory insurances stipulated by the insurance act of 2003 for effective enforcement as:
These are third party motor insurance; Statutory Group Life Insurance
Employee’s Compensation (which replaced Workmen Compensation)
Occupier’s Liability Insurance; Builder’s Liability Insurance and health Care Professional Indemnity Insurance.
The commission launched these insurances in the six geo political zones of the country and declared that enforcement should commence in March 2011.
The MDRI also has the objective of creating 50,000 jobs through the agency system. The initiative was also targeted at fighting against fake insurance practice in Nigeria.
The commission few years back, conducted a research on why insurance patronage is low in Nigeria. From the research, NAICOM said it discovered that Nigerians don’t hate insurance as assumed neither are they so poor that they cannot buy insurance but that the major reason was lack of awareness and knowledge about insurance as well as non-availability of insurance products to the grass root consumers.
The commission therefore challenged the operators to move into the grass root with suitable products and tap from the existing opportunities.
By its original design, the first phase of the MDRI, which was between 2009 and 2012 was meant to achieve the objective of transforming the market into a trillion naira market. However, this was not achieved at the targeted time as the industry’s premium remained at N300 billion as at December 2012, according to NAICOM, prompting the commissioner to declare that come the second phase of the initiative which will last between 2013 and 2017, the industry will achieve the target.
The industry under the regime of Daniel witnessed some reforms targeted at improving its fortunes.
Some of these reforms include transparent accounting system as the industry migrated from the Nigerian Accounting Standard Board System to International Finance Reporting Standard(IFRS).The industry also launched the Cooperate Governance Structure and the Anti Money Laundry structure in order to remain globally competitive.
Still in search of ways of growing the industry’s premium, the commission in 2010 launched guidelines on insurance of oil and gas business in Nigeria as a way of ensuring that local content policy of federal government is implemented in the insurance industry.
The industry has also solved the lingering problem of heavy indebtedness in form of outstanding premium, which had been the bane of its growth through the enforcement of the “no premium no cover” rule, which had been there in the insurance act of 2003 but was not implemented. This took effect from January 1, 2013. The policy received a loud ovation of the industry operators as they described it as the beginning of new things in the industry.
The above developments put together have no doubt placed the insurance industry on a better growth platform as could be seen from signs of growth shown by many firms in the system. The former commissioner said these efforts were made by the industry in preparation for meeting the vision 2020 target of becoming the 15th biggest market.
Given the high level of growth plan put in place by the regulator during the tenure of the last commissioner, he declared that the ground has been watered enough for the industry to record significant growth in the nearest future.
He noted that the value of insurance contracts would rise to about N1 trillion ($6.4 billion) from N300 billion in 2017, adding that the industry would contribute about three per cent to the Gross Domestic Product (GDP), while penetration will increase to 22.5 per cent from 10 per cent.
He also said compulsory motor-vehicle insurance, which makes up most contracts now, would remain at about 10 per cent by 2017, while life insurance would constitute seven per cent, general business insurance three per cent and petroleum companies’ insurance 2.5 per cent.
With these plans on ground, Fire sign investors see a lot of potential in Nigerian insurance market and have moved to buy over existing but weak insurance companies. Some of these investors include Old Mutual of South Africa, INSIA, AxA Mansard among others. They are currently doing well in Nigeria.
One of the major growth plans, which industry operators have been able to achieve within the period is the development of the Nigerian Insurance Industry Data Base (NIID) by the Nigeria Insurers Association (NIA).
The NIID is a central system that allows all insurance companies to store all valid policy real time. It is designed to serve the objective of developing a capacity to monitor and authenticate underwriting transactions within the insurance industry which would serve to reduce the incidence of fraudulent insurance transactions and policy certificates.
A critical examination of insurance industry since independence shows that though the industry recorded stagnation during the early years of independence, it has in recent years recorded tremendous improvement especially in the area of awareness as more and more Nigerians now hear and know about insurance. Today, the industry operators have risen up to develop retail insurance segment by aligning efforts with mobile telephone operators in the distribution of insurance products to Nigerians.
Both the regulatory body and the various arms of the industry are not resting on their oars in this all important effort to popularise insurance among Nigerians.
Just two years ago, the proposed Nigerian College of Insurance became a reality as the institution has commenced programs for Nigerian students.
Through the efforts of the Chartered Insurance Institute of Nigeria (CIIN), insrance has been included as a subject of study in secondary schools in the country.
The latest is the fact that the industry has now formed a consultative committee comprising executive members of various arms of the industry. The relevance of the committee is that henceforth, the industry will begin to speak with one voice in any matter of interest to the industry rather than speaking separately as individual arms. This, according to industry analysts will make the voice of the industry noticeable to government in any matter that affects them.
Despite these achievements, both the operators and industry analysts said a lot still needs to be done to make the industry globally competitive.
One of the major areas they identified operators have not done enough was the area of growing retail insurance.
Managing Director Leadway Insurance Ltd. Mr. Oye-Hassan Odukale baring his mind on this said, Insurance is a business that you do with a large number of people. “You want to make sure that you touch people. One of the things we have been accused of in Nigeria is not reaching large number of Nigerians. That is low insurance penetration in the country.”
He added: “You penetrate insurance better by selling the product generally to a larger number of people. Even the commissioner for insurance himself agreed we have not adequately penetrated the MARKET.
Nigeria has a population of over 175 million people so where we look at it that the market is tough, people outside Nigeria see it as opportunity because they look at the number of people we have and if you can sell products to them you know you have penetrated the market. So it is a matter of time we are looking at it also that we need to look at our backyard .There are people to reach there, I look at it that we in insurance industry , we have been a bit lazy I will be frank with you .We are not trying to reach people enough with insurance. When it comes to overall premium income of insurance industry, it is not all that bad but most of them come through commercial insurance because you can sell one policy to an organisation for a couple of millions.
You need to sell probably 1,000 policies to individuals to make that same level of premium and previously we had challenges of bad payments system because you want to sell in a way that you can efficiently collect your premium. Now it is getting better but we are still struggling.”