As economic headwinds emanating from the fall in oil prices and a depreciating naira resulting to declining consumption for insurance services, operators in the industry have resorted to cost cutting to stay afloat, BusinessDay invstigations show.
This challenging business environment which has largely affected premium income, particularly from government businesses, which hitherto accounted for over 45 percent of total industry revenue analysts say, would result in a sharp drop in insurance companies’ revenue this year.
“You remember that the absence of ministers has also affected key decisions in the award of contracts by agencies and parastatals, so insurance like any other sector suffered because government remains the biggest spender in the economy, an insurance industry CEO’s who craved anonymity said.
Nigeria’s gross domestic product(GDP) has dropped to 2.35 percent as at the end of second quarter, as against 3.96 percent in first quarter 2015, while the financial services sector, following the fall in naira is experiencing a liquidity squeeze, making it impossible for infrastructure projects to really get off the ground since over 10 months now, economic data shows.
Kola Adedeji, managing director, Niger Insurance plc said “though the economy has been witnessing a tough patch, we are making efforts to achieve some level of growth, even if not exactly with our earlier projection.
“But then, we are also rationalising the number of locations we keep, to ensure we reduce cost and maintain some good margin. If money is not coming in as expected, you reduce cost.”
Adedeji added, “you may not have control of money flow, but you have control of certain expenses, so we try to control the ones we can control, and when things improve, we spend more money”.
He expressed optimism that things would begin to normalise as soon as the ministers settle down, observing that “what has been going on looks like foundation laying for a better future”.
Bode Akinboye, group managing director, Standard Alliance Insurance plc said “realising that income levels are low, the company embarked on improving its processes, which has helped to reduce wastage and block loopholes. That has immediately increased savings in terms of cost optimisation”.
Akinboye observed that this is what the company has done to remain profitable and create value for its shareholders.
The industry’s total asset as at the end of 2014 rose to N711.4 billion, from less than N347.1 billion in 2007, indicating a 104 percent increase, while its gross premium income grew from N100 billion in 2007 to N302 billion at the end of 2014, an increase of over 200 percent. This, stakeholders, say is attributable to the pragmatism and dynamism brought into insurance regulation by the industry regulator.
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