Worried by low insurance penetration of less than one per cent in the country, stakeholders have advised weak underwriting firms in the market to embrace consolidation to form big ticket insurance firms that would match foreign investors entering the industry.
Besides, the recent licensing of new insurance and reinsurance firms by the National Insurance Commission (NAICOM) promoted by top brand individuals and corporate investors, is an eye- opener for them to build capacity that would take big ticket risks through consolidation of their operations.
For instance, an insurance and reinsurance technocrat and outgoing group Managing Director/chief executive, Femi Oyetunji, warned that unless the number of insurance firms are reduced to not more than 20 strong underwriting companies , the Nigerian insurance market cannot compete with their international risk market.
The reinsurance manager in an interview with This day Newspapers said “If we don’t reduce the number of insurance companies in this market, we are not going anywhere. My personal belief is that 15 to 20 well-capitalized, skilled insurance companies will transform the industry.
According to him, he would like to see insurance companies talking to each other, looking for synergy, and saying, let us come together.
He said the biggest threat at the moment is that global players with big capital and all that it takes to drive growth are here and taking a position and that at the end of the day, they will take away the expected benefits.
“We can clearly see the danger, having seen the trend. Why we have not seen many of them at the moment is because of the economic situation. Once the situation improves, the big players from America and Europe will come in and dominate, and that is where the benefits will go. If the global players are based in the US, UK, or Germany, they will take the benefits to those places.
“What I will like to see is consolidation, having fewer insurance companies that have the requisite skills, the analytics, the technology and the products that people want. That is what will move us from the current less than one per cent penetration to at least double of that size at first, then we can get to five per cent, 10 per cent and more. Imagine the kind of industry we will have when the penetration gets to five percent!” he said.
Also, PricewaterhouseCoopers, a multinational professional services network of firms stated this in a report titled “Insurance penetration in Nigeria” observed that the Nigerian insurance industry is performing below its risk capacity evident by the low patronage of insurance services in the country.
According to the firm, insurance sector if successful will support development and growth in the economy, encourage savings and investment, aid job creation and growth in capital markets and financial assets.
The insurance stocks on the Nigerian Stock Exchange, NSE, are not performing well as they should, given the apathy of investors who believe that insurance firms are not well managed, thus affecting profitability.
Besides, from the regulatory issues which operators in the industry are grappling with, poor patronage of insurance in Nigeria could be blamed on relationship management by some insurance companies which sometimes is below par because an average customer simply wants to be comfortable.
Such relationship challenges, according to the report, have their basis in weak corporate governance and risk management framework which sometimes make the companies seem unfriendly particularly when there are claims to be made by customers thus creating doubts about how well the insurance companies may be trusted.
“At the heart of this, customers often complain about the lack of flexibility and technology-driven innovation in terms of the kind of insurance policies and packages that meets today’s upwardly mobile audience of contemporary insurance,” the report said.
According to Coopers, the implications of these challenges on the industry are rife. For instance, in 2018, the Enhancing Financial Innovation & Access, EFInA report stated that of the 99.6 million adult population in Nigeria, only 1.6 per cent have insurance covers even though nearly 40 per cent of them have access to financial services.
According to Coopers, lack of awareness remains a key barrier as a massive 77.2 per cent of the adult population are not aware of insurance. Although largely due to the knowledge gap, the low-income level of the citizens makes it difficult to be convinced of buying insurance on a risk that may not happen, the benefits notwithstanding. Essentially, there is an urgent need to address these issues and grow the insurance industry in Nigeria. To this development, insurance experts have said that insurance companies in Nigeria must be deliberate and diligent in addressing these issues to curate the lethargy in patronage.