The rebound in the insurance sector’s gross domestic product means companies have regained the confidence of policy makers, but the industry is still ensnarled in a myriad of challenges responsible for low penetration.
“It is a confirmation of trust of the market in the industry. The government has trust in us,” said Olusegun Omosehin, the Managing Director, Life Assurance, Old Mutual Nigeria.
“There were donations by insurers during the coronavirus pandemic period,” said Omosehin.
The majority of analysts interviewed by MoneyCentral say policy makers are getting sufficient value from companies who are increasingly spending on the latest technology so as to deliver services to their customers in an expeditious manner.
The insurance sector returned to its growth path after recording 16.41 per cent growth in the second quarter of the 2021, according to the latest data from the National Bureau of Statistics (NBS).
That compares to contraction of 2.08 per cent in first quarter (Q1, 2021); 12.05 per cent in the fourth quarter (Q4), 2020; 16.54 per cent in the third quarter (Q3), 2020, and 28.15 per cent in the second (Q2), 2020.
The majority of insurers recorded strong top line growth.
The top 27 public Nigerian insurance companies reported aggregate revenue of N175.10 billion in the first six months of 2021, a year on year increase of about 21.85 percent, according to data gathered by MoneyCentral.
Experts say underwriters will continue to bolster public confidence if they are consistently transparent in their operations, and live up to their responsibility.
They urged insurers to improve on their products and deliver better services to customers needed to make their shares attractive.
Insurers are operating on very slim profit margins that makes it difficult for them to declare bumper dividends like their cousin, Banks.
It is saddening that despite having the highest number of firms in the stock market, the majority of them have stock prices below N1, which explains investors’ apathy towards shares.
The insurance industry has an average price-to-book ratio of 0.43x, that compared with South Africa (1.99x), Egypt (1.65x) and Kenya (0.64x).
Analysts are of the view that prompt claims payment will help underpin the confidence of policy makers.
Of course, insurers have been meeting their obligations to customers as the largest companies collectively incurred N195.45 billion in claims in 2020, which is 27.88 percent higher than 2019’s N152.83 billion, according to data gathered by MoneyCentral.
While the insurance sector growth is faster than the country’s economic growth of 5.1 percent, its contribution to national output is abysmally poor.
The sector continues to lag its peers in terms of penetration which stood at 0.5 percent compared with South Africa (12.9%), Kenya (2.8%), Angola (0.8%) and Egypt (0.6%) while density at $6.2 also remains weak compared to South Africa ($762.5), Kenya ($40.5), Angola ($30.5) and Egypt ($22.8).
Experts believe digitalization will unlock opportunity in the industry, help deepen penetration and financial inclusion.
The idea is to sell affordable products to people in remote villages and ensure customers can carry out transactions electronically wherever they are.
“We see opportunities in digital business. We are putting a lot of resources in the technological distribution channel; the kind of products that will be accepted by the society,” said Olalekan Oyinlade, managing director General Insurance, Old Mutual.
“We will be announcing our partnership with one of our telcos on one of our products. We believe insurance automation will be key for the future, simplifying customer engagement and claims process,” said Oyinlade.
The insurance recapitalization exercise is expected to spur the industry to growth and place it on the global competitive arena.
In 2019 the National Insurance, the body that regulates insurance activities in Nigeria, has hiked the minimum paid up capital for every category, and firms that will not be meeting the requirement will be expected to merge or have their operating licenses revoked.
Analysts at Afrinvest Securities believe less restrictive Bancassurance guidelines and the removal of the ban on partnership with Mobile Network Operators (MNOs) would allow for low-cost distribution of insurance products and deepen insurance penetration, especially at the low-income segment of the Nigerian market.
“We see recent developments in the form of the partnership between Axa Mansard & Carbon and agri-business insurance boosting premiums and awareness for the sector, although there are inherent risks,” said the analysts.
Analysts at AM Best are of the view that the successful new capital standard would be favourable for the sector as they should drive a market wide strengthening of capital adequacy.
“Market consolidation and the resultant reduction in competition should help alleviate fierce pricing pressure and improve underwriting discipline. However, unlike the risk-based-capital setting approach, the new capital requirements fail to account for each insurer’s unique underwriting assets, and operational risk,” said the analysts.