Insurance Recapitalization: The Quest for Efficiency

Insurance
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Wednesday, May 05, 2021 / 01:22 PM / by CSL Research/ Header Image Credit: Wikipedia

 

As the phase II deadline for the recapitalization of the Nigerian Insurance Industry draws nearer, cracks are beginning to emerge from the wall. The most recent being the National Insurance Commission's (NAICOM) revocation of UNIC Insurance Plc's license with effect from the 25 March 2020. Consequently, the firm was handed over to a receiver/ liquidator to ensure a seamless liquidation process. According to Mr. Sunday Thomas, the Insurance Commissioner, the company currently manifests every symptom of a business that would not survive the recent wave and all efforts to resuscitate it are being frustrated by its owner.

 

Over the years, especially since the last recapitalization in 2007, the industry has been engulfed in a brawl between the laggards and the high-fliers. While the underperforming entities constantly have issues of delay in claims payment, which has created distrust for the general insurance proposition in Nigeria, the 'high-fliers" have continued to battle that narrative through increasing levels of efficiency. NAICOM has also been coming up with policies to ensure seamless insurance delivery. Recall that in 2019, NAICOM instituted measures to ensure that players in the industry make prompt claims and benefits settlement as part of its quest to restore the eroding public trust for Insurance in Nigeria.

 

Since the policy of recapitalization was proposed by the regulator, activities have intensified in the industry as players seek to meet the stated deadlines. For instance, we saw a flurry of bonus issuance of shares in December 2020, as firms sought to meet the Phase I deadline by converting retained earnings to paid-up capital as directed by NAICOM. This followed in the track of the series of takeovers that were announced in late 2019 and early 2020. We note that beyond improving underwriting capacity in the industry, the recapitalization exercise would eliminate operationally weak firms that have been a clog in the wheel of the industry over time.

 

In our view, there is enormous potential for the players in the insurance industry in Nigeria given its untapped potentials as insurance penetration remains significantly low. To tap into this, however, would require players to come up with innovative products. One of such innovative ideas in our view, is developing products targeted at millennials and Gen Z, who are currently excluded from the insurance net in Nigeria; despite constituting a sizeable number of Nigeria's population. Opportunities in the insurance industry are widely unexplored and a combination of favourable policies from NAICOM and efficient delivery by surviving players can help open more untapped areas.


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