By Joy Baba-Yesufu
The Nigerian insurance industry is paying attention to major macroeconomic headwinds including FX risks and purchasing power of consumers, which are impacting their operations and ability to deliver value to stakeholders.
According to the industry, fuel subsidy removal, FX challenges, high inflation, job losses are impacting the purchasing power of the consumers and ability to for the pay for insurance, as well as cost of production that cuts across other businesses.
Segun Omosehin, chairman of the Nigerian insurers Association (NIA) said, these were part of the discussions that came out in his meeting with chief executive officers of insurance companies at the maiden edition of its ‘NIA Chairman’s Time-Out with CEOs’ held in Lagos.
He said the NIA Chairman Time Out With CEOs, is an additional platform to educate and interact with members on current events in the industry and how to position effectively to surmount economic challenges posing as threat to insurance business.
Omosehin said understanding the macroeconomic environment will help insurance companies in their decision-making, even as the plan their budget for the coming year.
He disclosed that experts from Agusto Consulting were engaged as part of the maiden meeting to dimensioned issues around macro economy and examine the operating environment for members
Analysts at Agusto Consulting Limited, Oritsejimi Ogbobine and Funmilayo Olore speaking on Macroeconomic Review, noted that industries would be exposed to severe downside risks owing to macro headwinds, adding that the two major risks will be FX risks and weaker consumer purchasing power owing to the removal of fuel subsidy.
They noted that the lingering FX crisis would have a material negative impact on several industries, particularly industries with high dependence on imports and weak FX earning capacity.
According to them, the most vulnerable industries would be the ones, which import finished goods and have little local value add and that the weakening purchasing power owing to the removal of the petrol subsidy would impact the way consumers purchase products.
“More consumers will seek down market substitute products in a bid to mitigate the risks of weaker purchasing power, and the most vulnerable industries to the weaker purchasing power will be products which consumers view as non-essential.”
Overall, industries will largely resort to price increases, which may result in increases in nominal revenue albeit product volumes will contract, they stated.