From Ngozi Onyeakusi, Lagos
Nigerian insurance industry is presently undergoing recapitalization exercise. This exercise according to the industry’s regulator, the National Insurance Commission (NAICOM) would boost the local players ability to retain huge risks. Which will in turn ensure that these huge risks which before now were ceded abroad would be retained locally.
Speaking at the just concluded 46th African Insurers Organisation (AIO) in Johannesburg, South Africa, the Commissioner for Insurance, Mohammed Kari traced the slow growth pace of insurance industry in Nigeria to the fragmentation of the financial sector within the country.
According to Kari, unlike in most countries where the financial sector only has one regulator regulating activities of the banks, insurance companies, pension fund operators and Health Management Operators (HMOs), Nigeria has series of regulators, each controlling each sub-sector of the financial sector.
He said, the Central Bank of Nigeria (CBN) controls the banks, the National Pension Commission (PenCom) controls the pension fund operators while the National Insurance Commission (NAICOM) regulates the insurance industry whereas, in some countries, these sectors were considered as one and are regulated by a single regulator, which gives the financial sector of these countries good ratings because the achievements are counted as one.
Whereas pension and Health insurance are classified as the products of Insurance industry in most countries, he said, Nigeria’s case is an exception.
According to him, “Nigeria operates a fragmented financial sector which restricts insurance sector to only the conventional insurance products and services. Pension is seen as a separate industry as well as health insurance when other countries classify pension and health insurance as being under the insurance industry. This is a misnormal, a situation that is affecting the growth of the sector.”
He said, such fragmentation is one of the reasons why Insurance penetration is said to be below one per cent, thereby, limiting the contribution of the sector to the nation’s Gross Domestic Product (GDP).
If health insurance and pension products are added to the insurance industry,he believes, insurance contribution to GDP would rise, as well as the penetration rate which will make Nigerian insurance industry compete with its peers across the world.
Although, he felt Nigerian Insurers must be responsible in meeting and surpassing customers expectation in the area of product delivery and prompt claims payment, he noted that, the low risk retention capacity of the sector also needs to be addressed.
To this end, he said, the ongoing recapitalisation exercise will allow local insurers to retain huge risks in the country, thereby, avoiding premium flight, that will, in the long run, increase the profitability of the sector and its impact on the nation’s economic growth and development.
While stating that the recapitalisation is long overdue as foreign exchange rate, asset replacement values as well as claims volume have increased in the last 12 years, he added that, operating with the current capital base is putting insurance firms at risk.