Sunday, January 17, 2021 /08:00 AM / by FDC Ltd/ Header Image Credit: @followlasg
The
Nigerian economy has become increasingly prone to violence and social unrest
due to a growing public resentment against the government. Insurgency groups
such as Boko Haram, and the killings by the Fulani herdsmen, have also
contributed to the vulnerable security condition in Nigeria.
A
more recent crisis was the destruction and looting of numerous public and
private organizations after hoodlums hijacked the #ENDSARS protest against
police brutality. Many business owners were left with huge losses, prompting
renewed attention on the role and capacity of the Nigerian insurance industry.
The
Nigerian Insurance Industry
Globally,
the insurance industry has been one of the hardest hit by the economic fallout
of COIVD-19 due to a spike in insurance claims as many businesses have come
under severe financial pressure. Although insurance companies have claimed that
pandemic-induced business disruptions are not covered, business owners have
insisted that the insurance industry bare some of the financial losses on their
businesses.
On
the domestic front, the Nigerian insurance industry has not been spared the
devastating impact of the pandemic. The sector slid into a recession in Q3'20
after it contracted by 18.67%, following a 29.5% contraction in Q2'20. The
Nigerian insurance industry is embattled with a list of challenges such as the
prevailing low interest rate environment in Nigeria, which is weighing on the
profit margins of many sector players, lower premium income and increased
insurance claims amid the fallout of the pandemic.
Social
Unrest and the Nigerian Insurance Industry
For
a sector still recovering from the effects of COVID-19 and struggling with low
interest income on its assets, the frequent occurrence of social unrest across
the country will impact negatively on the financial position of many insurance
firms and the overall performance of the industry. On the other hand, the
crisis has increased awareness about the importance of insurance and is capable
of resulting in increased insurance penetration in the country. The Nigerian
insurance sector is still quite underdeveloped with a penetration rate of 0.7%,
significantly below regional peers like South Africa's 12.89%.
Furthermore,
proper responses to insurance claims could pass a message to business owners
who have not subscribed to an insurance premium. The crisis has also created
more knowledge of required insurance offerings and the need for more specific
insurance premiums. This should help insurance companies expand their products thereby
increasing the chances of participation among individuals, households and
businesses.
Conclusion
As
much as the recent civil unrest poses a risk to the profitability and recovery
of the Nigerian insurance industry, it has a potential to reposition the
industry for growth and development, if sector players adopt the right
strategies. The possibility of mergers and acquisitions within the industry
will also help to promote market consolidation and empower sector players to
strive for growth. The National Insurance Commission, the regulatory body
overseeing the affairs of the Nigerian insurance industry had issued a
guideline for the recapitalization of the industry last year but the deadline
for this has been extended to Q3'21 due to the pandemic.
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