The challenges of Nigerian insurance industry and possible solutions (1)

Insurance companies have over the years expectedly devoted attention to the development of products for corporate firms. Thus, insurance companies currently generate about 80 percent of their premiums from corporate firms. This group is made up of people that are either enlightened about the benefits of having insurance cover or mandatorily required to take it by law.
On the other hand, less than 1 percent of the Nigerian population has insurance cover from the industry that has been in existence for close to a century. The result is the low penetration of insurance in the Nigerian economy, contributing less than 1 percent to the country’s Gross Domestic Product (GDP).
This article highlights some of the challenges facing the insurance industry and the possible solutions. The challenges arising from different areas of insurance operations include but not limited to the following: human capacity development, Information Technology, risk and capital management, market development, product pricing, product innovation and poor image/perception.
Human capacity development
Human capacity/capital development is a key driver and critical determinant to success of any company and industry. Capacity development is about the critical skills required and how such skills are harnessed efficiently in the organization to attain corporate objectives. There is a general shortage of skilled professionals (underwriters, brokers, actuaries, etc.) in the entire insurance industry and some of the reasons behind the shortage are explained below.
Generally, there is inadequate and/or irregular training of staff (including IT staff) and Board of Directors of companies within the insurance industry relative to the banking industry. Majority of the insurance companies attract low-skilled personnel due to inadequate remuneration package and hence inability to retain competent employees.
The insurance industry does not support/embrace contribution of other non-insurance special skills. Insurance companies also place emphasis on technical skills as against specialized business skills. This restricts the growth and development of non-insurance skilled professionals within the insurance industry. The lack of training of Board of Directors on basic insurance operations results in inadequate supervision of executive management activities by the board.
The demand for actuaries in the Nigerian financial services industry became more pronounced following the introduction of IFRS. Incidentally, in the insurance industry, every insurance company needs to have an actuary, as IFRS requires that every entity’s balance sheet reflects true and fair representation of the obligations (e.g., to policyholders). Thus, the dearth of actuaries in Nigeria would not only affect the insurance companies’ operations but also the oversight functions of the regulatory body. Furthermore, there is lack of awareness about the actuarial profession and what actuaries can do.
Some special insurance risks (such as aviation, oil and gas, etc.) are not fully underwritten by domestic insurers because of lack of local professional underwriters.
Possible solutions
Engagement of adequate staff with professional background to carry out oversight functions: The CIIN should ensure that insurance professionals live up to the bidding of true professional in word and in deed. To this end, the CIIN should constantly review and expand their curriculum beyond core insurance courses in order to build knowledge capacity. CIIN also needs to introduce Continuous Professional Development (CPD) programme in order to keep its qualified members abreast of professional standards and practices.
Employment of non-insurance skilled professional without discrimination should be emphasized. Actuarial professional training programmes are needed to create the awareness of the profession. Funds should also be allocated for training of employees and/or Board of Directors.
Information Technology
Many companies in the insurance industry do not have a fully automated and/or integrated computer software system (i.e., only few companies make use of integrated business application and IT infrastructure to drive business value). Thus, insurance data and document management system is relatively poor compared to other sectors in the economy.
The lack of information architecture and standardization of insurance data (including lack of local expertise in the field of insurance IT solutions) means that manual operations are still prevalent leading to delays in services provided (such as claims settlement), fraudulent practices, mistakes and errors in the entire business operations. This explains why the insurance industry’s statistics are not readily made available on a timely basis and there are also delays in submission of companies’ audited financial statements to regulatory bodies.
With low investment in IT infrastructure and hence low IT operating environment, companies lack the capacity to take critical and timely business decisions that can drive business values. The above also leads to inadequate data recovery plan (DRP) and non-existence of data security system devices (such as firewalls/dummy servers, etc). There is also no regulatory guideline on best IT infrastructure for insurers and reinsurers to adopt for both operational and reporting purposes.
Possible solutions
NAICOM should develop guidelines on best IT infrastructure for insurers and reinsurers to be adopted. Insurance companies, on their part, should expand communication infrastructures based on geographical expansion and sales network in the industry. IT should be leveraged upon for effective distribution channel of insurance products and services (e.g., online insurance products). Indeed, companies should be made to allocate a significant portion of their retained earnings on yearly basis to boost their investment in IT infrastructure. Consistent daily data back-up system is required both at internal and/or external sites.
Risk and capital management
Capital adequacy is a measure of financial strength of an organization usually expressed as a ratio of its capital to its assets.
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