2021: Nigeria’s Insurance Industry Signposted Magniloquent Business Savvy Despite Challenges

The year 2021 was thought to provide relief after 2020 COVID-19 socio-economic shutdown and the #EndSARS crises for businesses but was truncated by Omicron variant of the pandemic. Despite these challenges the insurance industry stayed afloat, YEMISI IZUORA writes

The entire business segment of the economy looked forward to 2021 as a year of respite after emerging from COVID-19 pandemic and the #EndSARS riots which took a toll on the national economy.

Crude oil which is the mainstay of the economy was hit by low production while the manufacturing sector groaned under poor access to forex thus recording marginal success.

Generally, the insurance sector entered 2021 with a more positive outlook, yet there’s continued uncertainty with inherent challenges and opportunities.

The COVID-19 situation equally created challenges for the real economy and financial services, yet markets have proven resilient. Financial institutions were bolstered through effective regulatory measures introduced after the global financial crisis and supported by government and central bank stimulus to tackle the health crisis and its economic impacts.

The shape of the recovery and the global geopolitical outlook, including regulatory equivalence decisions remain key uncertainties, although the inherent long-term outlook of insurers and expertise in risk management versus banks may yet again lead to the sector proving more resilient.

Despite these overlapping challenges the Nigerian insurance industry recorded fair business though investment in technology and clear business discernment.

Agusto & Co.’s estimates, that the Nigerian Insurance Industry’s gross premium income (GPI) grew by 15% year-on-year to ₦592.3 billion in the financial year ended 31 December 2020.

Technological innovation in product distribution induced by the pandemic, regulatory-backed opportunities including the digitisation of marine insurance certificates and an increasing awareness of the benefits of insurance are some of the GPI growth drivers during the 2020 financial year.

The industry fully understands that a handful of accelerating technology trends are poised to transform the very nature of insurance.

For sector to remain relevant, and survive in the future financial services industry, there is a need for operators to embrace digital transformation to unlock latent potential.

This is in view of changing consumer segment and appetite, which requires digitalisation as a quick changing driver to boost customer relationships and experiences, redefine value proposition, and optimise business model processes.

This strategy has full backing of the National Insurance Commission (NAICOM) which has also urged insurance operators to invest significantly in technology to drive efficient business operations in the industry.

Essentially, the on-going recapitalisation exercise aims to change the structure of the Industry but the persistent naira devaluation has reduced the strength of the Industry’s capital since the last recapitalisation exercise in 2007.

Although some insurers have strengthened their capital base through earnings retention, the ability of most Industry operators to solely underwrite large ticket transactions has dwindled based on the lower value of the capital in USD terms. As at 31 December 2020, the Industry had an estimated capital base of $1 billion, significantly lower than $2.2 billion recorded as at 31 December 2007.

As a result, the National Insurance Commission (NAICOM), the apex regulator in the Industry, raised the minimum capital to ₦8 billion (from ₦2 billion), ₦10 billion (from ₦3 billion), ₦18 billion (from ₦5 billion) and ₦20 billion (from ₦10 billion) for life insurers, non-life insurers, composite insurers and reinsurance firms respectively.

The recapitalisation exercise has suffered some setbacks particularly as the COVID-19 pandemic ravaged the global economy, Nigeria inclusive.

Consequently, NAICOM postponed the deadline for the recapitalisation exercise which was later stratified into two phases; December 2020 and September 2021.2021: Insurance industry shows resilience amid rising claims

In addition, litigation by some Industry operators and aggrieved shareholders resulted in the postponement of the December 2020 deadline for the first phase of the recapitalisation exercise.

Notwithstanding the setbacks, in a report Agusto & Co. believes the recapitalisation exercise could be a watershed in the Industry. In addition to the benefits accruing from a larger capital base from a risk underwriting perspective, improved investment management practices will be upheld by a larger investment portfolio driven by a need to generate adequate returns.

The recapitalisation exercise has elicited mergers and acquisition transactions in the Industry and there is anticipated uptick in these transactions as the deadline draws near.

The shareholding structure of most insurers is expected to change in the near term as some investors leverage the exercise to either gain or increase exposure to the Industry. With the gradual rebound of the global economy, more foreign investors are expected in the Industry, given that the naira devaluation has reduced the value of insurance companies (in USD terms), despite the undisputed opportunities in the Nigerian insurance industry.

The entry of new players after the embargo that lasted over a decade was a key point in the Industry. In November 2020, six new operators were licenced in the life, non-life and reinsurance segments of the Industry.

The firm anticipates the entry of more players, particularly from existing financial institutions seeking opportunities for diversification of income.

It is thus expected that the new players will intensify competition in the Industry and new insurance products and business practices are also expected from these new players.

Stakeholders further expect a better performance by the Industry in the near term on the opportunities accruing from the pandemic and the #Endsars is optimised. The gradual increase in the prevailing interest rate will also support the investment income of insurers.

It is expected that more innovative product distribution channels will be introduced to reduce the dominance of insurance brokers.

Notwithstanding, Agusto & Co. believes the insurance brokers will remain strategic to the Nigerian insurance industry given the wholesale focus of the Industry.

Coming to the end of the year, Investment bank Norrenberger Advisory Partners Limited gained the assent of the insurance industry’s watchdog for its bid to buy International Energy Insurance (IEI), which has come under a loss-making spell for years on end.

Understanding Key Factors That Shaped The Industry

The COVID-19 pandemic certainly pushed health and wellness to the forefront of customers’ concerns. Insurers have responded by bolstering their traditional medical and life cover with an array of digital health and wellness products and services.

Digital service and distribution channels moved to oust carriers’ traditional channels as the primary point of customer engagement, but the inputs of physical channels and experts remained sought after for advice on complex decisions and offerings. Consumers have flocked to using the digital services during the pandemic and few returned to their previous habits. Digital services that are seamlessly combined with phygital experiences, particularly on mobile platforms, emerged as the key differentiator when consumers buy insurance. Those carriers that are slow to roll-out enticing digital offerings will lose customers.

Advances in digital technology are opening a host of opportunities for insurers eager to expand beyond their traditional markets. The flat premium revenues and low investment returns predicted for 2021 will accelerate this trend.

Insurers launched an array of innovative risk-management offerings in the wake of the COVID-19 pandemic. Demand for tailored products, such as business-continuity cover for small enterprises, cyber-threat protection, pandemic insurance, and event-cancellation policies soared.

Innovative new insurers have enjoyed the limelight in the past few years, attracting substantial funding. However, traditional carriers will come to the fore this year. Their asset strength and extensive in-house resources will enable them to weather possible adverse economic conditions and secure new revenue opportunities. The insurance industry is likely to see some significant mergers and acquisitions in 2021.

Consumer trust became a critical feature of business in 2021. Consumers expected their providers to give them good service and value for money, they’ll also require them to protect their personal information. What’s more, they’ll expect their providers to behave ethically in all facets of their businesses. Insurers that are perceived to have breached the trust of their customers risk substantial reputational damage.

Insurers came under growing pressure this year to demonstrate their support for sustainability initiatives that address climate change, environmental pollution, and social injustice.

Remarkable Industry Activities

The sector played host to the 47th African Insurance Organisation (AIO) conference with the theme, “Rebuilding African Economy, the Insurance Perspective.”

The Chartered Insurance Institute of Nigeria (CIIN) anchored the theme of its professional’s forum for 2021 on “The Nigerian Insurance Industry in the Digital Era”. Also, the Nigerian Council of Registered Insurance Brokers (NCRIB) held its annual conference themed “Innovation, Strategy and opportunity.”

Also, in the year under review, the NAICOM, released a 3-year strategic plan on what to expect in 2021 and beyond.

According to NAICOM, the plan which aims to transform the industry within the period of execution (2021-2023) has its foundation on five pillars, namely: entrenching effective and efficient service delivery; ensuring safe, sound and stable insurance sector; adequately protecting policyholders and public interest; improving trust and confidence in the insurance sector; encouraging innovation, and promotion of insurance market development.

The Commission also began work on guidelines for insurance web aggregators that would soon be introduced to aid underwriting practice in the sector.

A web aggregator is an insurance intermediary or an insurance company that provides information on insurance provided by different companies.

The Commission equally engaged state governments to facilitate its plan on implementation of compulsory insurances in the country.

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