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.
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.