BusinessDay
Godsgift Onyedinefu
August 5, 2024
The Nigerian Senate’s proposed Insurance Bill, intended to reposition the regulatory framework of the country’s insurance industry, has come under scrutiny for failing to address issues around low penetration which remains the most pressing challenge that has weakened the sector’s growth for decades.
Nigeria has one of the lowest insurance penetration rates in Africa, standing at a mere 0.5 percent, a stark contrast to other African markets such as South Africa, where penetration exceeds 14 percent. This low penetration rate highlights the significant challenges that the Nigerian insurance industry faces in reaching a broader segment of the population.
Additionally, low operating capital has also impoverished the industry as most of the big-ticket businesses opt for foreign insurers.
Industry stakeholders and experts argue that Insurance Reform Bill, 2024, sponsored by Adetokunbo Abiru, chairman of the Senate Committee on Banking, Insurance, and Other Financial Institutions, falls short in addressing fundamental issues hindering the insurance acceptance.
While the bill proposes increased capitalisation requirements and stiffer penalties for non-compliance, it does not sufficiently tackle the low penetration rate.
Rotimi Fakayejo, a financial expert, said low penetration is a key challenge and suggested that a legislation that prescribes insurance as a prerequisite for accessing other essential services should suffice.
The Nigeria Insurers Association (NIA) and other stakeholders have pointed out that the bill lacks sufficient provisions to empower regulators to enforce compulsory insurance, which is seen as crucial for increasing penetration. Essential insurance types, including third-party motor insurance, group life insurance, and occupier’s liability insurance, require more robust enforcement mechanisms to ensure wider compliance, they say.
According to Statista, 2021, South Africa has the highest Gross Insurance Premiums in Africa valued at $51.2 billion, while Nigeria falls behind at $1.6 billion.
Read also: Nigerian Senate moves to impose windfall tax on banks, passes bill to second reading
Factors such as low awareness, economic instability (naira devaluation and inflation which affects the value of premium), and a general mistrust of insurance companies among the populace are not adequately addressed by the proposed legislation, according to industry players.
In its memoranda to the Senate, the NIA observed that the bill does not have sufficient provisions to enable the insurance regulator effectively and efficiently enforce compulsory insurance.
It acknowledged Section 76 (i) of the bill, which stipulates that every public building shall be insured against the hazards of collapse, fire,
earthquake, storm, flood and such other hazards as the Commission may determine from time to time, recommending that the bill ought to propose more of such provisions to drive insurance.
Samuel Nzekwe, a financial analyst, said the National Assembly ought to formulate a regulatory framework to make insurance mandatory in Nigeria.
He highlighted several challenges in the sector, including low awareness and significant trust deficit, noting that many people opt for third-party insurance over comprehensive coverage.
“People don’t trust insurance schemes. They choose third-party insurance instead of comprehensive insurance. Most people don’t understand insurance; it’s ambiguous. They only take insurance because it’s statutory. The Senate should enact bills that will drive uptake of compulsory insurance,” Nzekwe said.
“People don’t know about insurance, and those who do are very skeptical due to a lack of confidence in the industry, especially arising from claims disputes,” he stressed.
Nzekwe mentioned the impact of inflation and devaluation of naira on the insurance business, stating that the value of insured money diminishes over time.
“One major issue in the insurance business is that inflation affects the value of insured money. In long-term insurance, the money loses value. You’re not sure of getting what you want. They should also factor in inflation,” he added.
He called for comprehensive measures to restore confidence in the insurance sector, emphasising the need for transparency and inflation-adjusted policies to protect the insured.
Kunle Ahmed, president, NIA, speaking during a public hearing on the bill, noted that the bill does not address impact of inflation and devaluation on insurance.
He also emphasised need for more stringent regulation to deepen penetration.
“We must fashion out a way of insuring that all cars in Nigeria are insured. Countries that have advanced have clearly spelt out consequences for not adapting to compulsory insurance. We should imbibe the same in Nigeria as it is done on places like the United Kingdom.”
Though he applauded the increase in paid-up capital, he stressed that it does not address low penetration. He cited that Morocco’s capital requirement of $5 million for life and non-life businesses and Kenya’s requirements of $3.8 million for life and $2.3 million for non-life, noting that South Africa has the least capital requirements and one of the biggest markets.
Section 15 of the legislation proposes N25,000,000 as minimum capital base for non-life insurance business; N15 billion for life assurance and N45 billion for reinsurance business. The bill has scaled the second reading at the Senate.
It stipulates that a person shall not carry on insurance business in Nigeria unless the insurer has and maintains, while carrying on that business, the minimum capital requirement.
Ahmed highlighted that Nigeria’s current capital requirements are relatively competitive within Africa, but the market size in other countries far surpasses Nigeria’s. “South Africa’s market is approximately $50 billion per capita, Kenya’s is over $1 million, while Nigeria’s non-life business is only $0.63 billion, and life business is $0.43 billion,” he explained.
“Currently, we have more capital chasing small transactions in the markets”, he told the Senate Committee on Banking.
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Business Day, established in 2001, is a daily business newspaper based in Lagos. It is the only Nigerian newspaper with a bureau in Accra, Ghana. It has both daily and Sunday titles. It circulates in Nigeria and Ghana
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