Thursday,
January 21, 2021 / 10:26 AM / By CSL Research / Header
Image Credit: iStock/Ecographics
The Nigerian Insurance
sector is critical to propelling income equality and reducing the poverty level
of any society, but the industry's performance has continued to drag amid many
factors, such as; low underwriting capacity of players, lack of trust by
consumers, poverty and the inadequacy of distribution infrastructure. These
factors have jointly contributed to the abysmal level of insurance penetration
- the proportion of insurance business to the gross domestic product over the
years.
The Nigerian Insurance
sector remains largely underdeveloped with Insurance penetration still at c.0.5% to
GDP. The sector which contracted by 18.67% y/y in the Q3 GDP report released by
the National Bureau of Statistics (NBS) is set for a deep recession in 2020.
The Covid-19 pandemic effect has increased health, travel, and business
disruption claims. These claims, coupled with underwriters' inability to write
risks in Q2 and the tapered household income should amplify the sector's
expected recession.
In a bid to rid the sector
of these known drags, the National Insurance Commission (NAICOM), the primary
regulator in the industry, launched its recapitalization exercise in May 2019.
The plan's proponents intend to improve the industry's minimum paid-up capital
in each business segment, thereby solving premium flight issues that have
continued to plague the industry. Following the lingering impact of
coronavirus, the deadline was adjusted from June 2020 to December 2020 to
implement Phase I of the project while the deadline for the second phase's
performance was moved to September 2021.
Some players have called
for an extension of the regulator's deadline given the impact of Covid-19 on
their businesses. However, most of the industry's bellwethers have entirely
shored-up their minimum paid-up capital to the required level. In our view,
firms that are yet to meet the required capital threshold may likely lose out
on the opportunities available on the supply side of the market. Furthermore,
for the industry to thrive, the regulators may also need to deepen micro
insurers' activities in the Nigerian economy.
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