Nigeria’s slide into a second recession in five years has sent jitters into the country’s risk management industry, raising fears among insurers that danger looms.
Nigerian insurers who are grappling with a low penetration rate of 0.4 percent contributed largely by low purchasing power of the average citizens, low credit economy, among others, fear that recession, which implies drop in revenue and fall in standard of living, portends danger for purchase of insurance.
Players in the industry, who shared their feelings about the development in an emailed response to BusinessDay enquiries, said the current situation could lead to reduction in covers, outright cancellation in extreme cases, pressure on claims, as well as costly reinsurance acquisitions.
Daniel Braie, managing director/CEO, Linkage Assurance Plc, said an economy in recession portends danger for the insurance industry as companies and individuals are going to push back on insurance.
“For example, there will be requests for reduction in covers, cancellations in the extreme cases. There could also be spikes in claims,” he said.
Braie said the insurance industry will witness slowdown in growth, being a subset of the economy. Insurance business thrives in a healthy economy that is witnessing growth, he said.
Mayowa Adeduro, managing director/CEO, Law Union and Rock Insurance Plc, said he expected the recession given the impact of Covid-19, very low crude oil price and the woe compounded by #EndSARS protest and violence that followed through.
Adeduro noted that the impacts of the recession on the insurance industry are sure to be varied depending on the angle you look at it.
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“First, the demand for insurance is very elastic, meaning that a little increase in price that responds to increase in cost of production will be resisted by consumers,” Adeduro said.
“The industry will face product dump by consumers as life style adjustments to cope with increasing cost of living will hit consumers,” he said.
According to him, inflation and increased cost of production will impact productivity, profitability, industrial harmony and investor confidence in the industry. This will also be pronounced with monetary repression being witnessed amidst inflation rate above 14 percent.
Adeduro said the foreign reinsurers may likely exit the industry as companies may find it difficult to meet obligations of reinsurance premium payment to foreign reinsurers.
“Companies may encounter more difficulties in accessing forex. This of course may be a plus for the local reinsurers,” he observed.
“Consumers are likely to be more sensitive to lodge claims and the industry should be on alert to respond speedily to avoid negative rhetoric of inadequate response to claims,” he said.
According to Adeduro, the SMEs and retail end of insurance consumers will be more impacted by the recession.
“Companies with disproportional portfolio towards retail will suffer most in this recession. However, those who embrace low distribution cost and technology will be less impacted than brick-and-mortar and boot-on-ground companies with numerous physical offices to pay rent, rates and staff cost,” he said.
Tope Smart, managing director/CEO, NEM Insurance Plc, said the businesses are experiencing a contraction in economic activities and this will impact the insurance industry.
He said unless the government finds a way to stimulate economic activities, it may take a while to come out of this recession given the fact that revenue has gone down significantly due to decline in oil prices and the effect of Covid-19.
The Nigerian insurance industry at the end of 2019 generated total premium income of N490 billion, a growth 15.5 percent from N413.8 billion in 2018, with larger part of the premium coming from corporate clients and less from individuals and SMEs.
Nigeria slipping into a recession after its gross domestic product contracted for the second consecutive quarter, according to official data released by NBS, means SMEs and individuals that have been finding it difficult to pay for insurance will shrink more in terms of disposable income.
