How effective regulation, innovation deepening insurance penetration in Nigeria
BY MOTOLANI OSENI
There is no doubt about the growth in the Nigeria’s insurance industry over the years, with the gross premium of insurance grew from N282.9 billion in 2015 to N726.2 billion in 2022, a modest 15 per cent annual growth over this period.
MOTOLANI OSENI, in this piece, examined impacts of the National Insurance Commission’s (NAICOM’s) regulations, technology and innovation in deepening insurance services in Nigeria.
The current statistics from the regulator showed that the industry total assets rose from N917 billion to over N2.3trillion in seven years, while life and non-life premium are both in a growth trajectory, with insurance penetration now at 0.4 per cent of the nation’s Gross Domestic Product(GDP) and an increase in insurance density to 1.5 per cent.
Also, insurance claims payout in 2014, rose from N99.1billion in 2014 to N318.1 billion in 2021. Although, Nigerian Insurance Industry’s loss ratio for 2015 – 2022 has remained within tolerable limits, making the sector relatively one of the most profitable globally.
It is, however, worthy of note that the aforementioned growth in the nation’s insurance industry was possible, due to effective regulations from the NAICOM.
Developments in the Nigerian Insurance Sector
For instance, under NAICOM’s Project E-Regulation, the regulator ensures that there was an introduction of its NAICOMPortal- with Insurance Policy, Licensing, Claims Module operational; BPM operational; Regulatory Returns& Analysis Module concluded; ERP, among many others.
Risk-Based Supervision
The regulator has continually ensure that under its Risk-Based Supervision that there’s is effective Capacity Development; RBS Manual; Pilot exercise. Refinement of the Framework & Manual; Onsite examination via the RBS approach; Reporting & follow-up.
Although, there are challenges of the insurance industry including; Insurance apathy and complexity; Income level; Environmental influence and Beliefs & Culture. Also, Inflation; Nigerian factor; Faultily premised spirituality and Social support system, among others.
Despite, the aforementioned challenges, the NAICOM, over the time has continued to deepening insurance services in the country with various regulatory frameworks with effective industry guidelines.
Deepening Insurance industry with tech and innovation
According NAICOM, the Nigerian insurance industry is most likely to be driven by the following technological imperatives such as: Big Data-Analytics; Artificial Intelligence; Internet of Things (IoT); Block chain; Block chain and Cyber risks – cyber-security requirements, etc.
Also, including, Focus on encouraging innovation – Guidelines on Regulatory Sandbox; Insurtech – Guidelines to incentivize innovation (standalone or partnership model), and Many disruptive insurance technologies.
Meanwhile, in an effort to meet the one trillion Naira annual premium target, the NAICOM has introduced new recapitalization which is expected to commence in insurance industry in 2024, however, low capitalised insurance companies are expected to face risk business restrictions.
Further findings show that, some brokers are currently refusing to take businesses to underwriters whose solvency margin is low.
After two failed recapitlisation exercise in insurance industry, between 2007 and now, the insurance industry regulator, that is, the National Insurance Commission(NAICOM) is considering Risk-based capital(RBC) which has been infused into the consolidated insurance bill before the National Assembly(NASS).
Risk-based capital(RBC) is a method developed by the regulator to determine the minimum amount of capital required of an insurer to support its operations and write coverage.
The risk-based capitalisation exercise, which, expectedly, will commence next year, is to ensure that underwriters upgrade their capital base in alliance with their risk appetite.
While this model will not prescribe any uniform capital, low capitalised insurers will face business restriction when the exercise commences.
Similarly, it was learnt that, high capitalised underwriters would be the only ones writing businesses in highly risked sectors, such as, Oil and Gas, aviation and maritime, even as the low capitalised ones would be restricted low risk businesses.
Findings shows that, although, there will be minimum capital to operate certain class of business, the current capital of N2billion, N3billion, N5billion for life,non- life, composite companies respectively could still be maintained for those who want to play in the lower end of the market, preferably the retail market, microinsurance and so,on.
While the last aborted recapitalisation exercise recognised share capital as the base of the exercise, there are indications that the current one may recognise Shareholders Fund as the capital under the exercise, thus, making the new exercise seamless and easier for the big players.
Speaking at the just concluded 2023 Retreat For Insurance Journalists themed, ‘Improving Stakeholders Perception 2023 and Beyond,’ the commissioner for Insurance/CEO of NAICOM, Mr Sunday Thomas, noted that, though, litigation and backlash besieged the last recapitalisation exercise, the next exercise would be seamless as nobody would be pressured into recapitalisation.
The Consolidated Insurance Bills, when signed into law, he said, would have taken care of this exercise, saying, the commission will swing into action as soon as the bill becomes a law.
Stating that this initiative will enhance soundness and profitability of insurers through optimal capitalisation, even as it introduces proportionate capital that supports the nature of insurance business, he stressed that, complexity of the businesses being conducted by insurers means the industry must undergo risk-based recapitalisation.
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While it is expected that there will be no cancellation of license, he said, operators will be subjected to solvency control levels and little or no mandatory injection of fresh capital by insurers.
However, he disclosed that the currently, insurers are on their own, raising up their capital to a certain threshold as set by their respective board, expecting more underwriting firms to follow in this direction.
The commissioner for insurance had earlier said, the numbers are looking up as the sector is doing very much in the area of claims settlement as well as recording high performance in micro insurance products which, he said, is increasing on both supply and enrolment sides.
