By Liz Booth
The level of mistrust of insurance in Nigeria is sky high, according to a new survey that reveals 138 million out of the 190 million-plus population do not trust that insurance will work as a concept.
The figures emerged as part of a new report by Nigerian rating company Agusto & Co.
The report states that the role of insurance in the Nigerian economy cannot be overstated.
“Its strategic importance in underwriting business and individual risks is evident in an estimated gross premium income (GPI) of N356 billion generated by the insurance industry in 2016, reflecting a 10% growth over 2015,” notes the report.
As for 2017, it continues: “We project a moderated growth rate of 8% on account of the recession, which is expected to have significant impact on major business lines. Agusto & Co estimates that 28% of the industry’s GPI was paid out as claims in 2016.”
The report reveals that last year the Nigerian insurance industry invested an estimated N178 billion in the banking industry as placements and deposits, and held Treasury instruments of more than N270 billion.
It suggests: “Opportunities in the insurance industry abound as the industry’s penetration rate stood at 0.4% in 2015. Insurance density rate, which measures GPI as a proportion of population, is $8.3 – compared to Kenya’s $36.4 and South Africa’s $970.8.
“Going forward, evolving risks such as job losses [and] cyber risks among others, will offer prospects for the development of new insurance products. We expect increased government spending in the near term, which will support GPI growth.
“In addition, microinsurance – which allows people to purchase insurance cover in small daily premiums payable using mobile phones – is expected to gain traction in the near term, with insurers using various avenues to reach the uncaptured market.”
It is not all good news, however, as like most other industries operating in Nigeria, the insurance industry was adversely impacted by the downturn in the economy – the Nigerian economy went into recession in the third quarter of 2016, following two consecutive quarters of negative GDP growth.
Agusto states that the industry’s regulatory environment is likely to change in the near term in response to the current macroeconomic climate. Regulators are beginning to emphasise insurance companies’ risk profiles against amount of capital held. The proposed risk-based supervision framework, which is expected to be implemented in the near term, will prompt reviews of business strategies.
As a result, the rating company adds: “We foresee mergers and acquisitions in the industry as well as foreign direct investments in the near term. Nonetheless, Agusto & Co is of the opinion that restrictions in the current FX regime may impede foreign direct investments. Another regulation that will shape operations in the insurance industry is the bancassurance guidelines, which have received significant attention from the regulators.” – CRA Newsletter