With over N8.4 trillion sitting as Asset under Management (AUM), the Nigerian pension industry has a lot to teach the older insurance sector.
Making its scheme compulsory in 2004, has helped the Nigerian pension industry grow its asset from zero to as high as N8.4 trillion as at end of November 2018, according to data obtained from the National Pension Commission(PENCOM)—the regulatory body that oversees activities of the scheme.
This meteoric growth cannot be said of its counterpart in the insurance space, National Insurance Commission (NAICOM), despite commencing regulatory operations about 7 years before the pension industry, which can only boast of about N703 billion. This performance is simply because the insurance scheme is not “mandatory,” according to claims from industry experts.
“Two fundamental things made the pension industry successful,” said Misbahu Yola, managing director for FCMB Pensions Limited— formerly Legacy Pension, told BusinessDay. “The pension industry is backed by law that you must open an account and your employer must contribute and if you don’t follow it you are in trouble. That is the major fundamental pushing up the pension industry but this is not the case with the insurance sector.”
Prior to the enactment of the Pension Reform Act 2004, the Nigerian pension industry was in an abysmal state, bedevilled with several problems including unfunded benefits and retirement budgets that were annually recorded.
These factors coupled with a lower penetration rate in the private sector exposed the industry to vulnerable shocks in the light of resource constraints. However, with the enactment into law of the Pension Reform Act, 2004 by the then President Olusegun Obasanjo, the industry was able to scale up and eliminate the problems associated with pension schemes in the country.
“The insurance sector potentially is supposed to be bigger than the pension but in Nigeria, it is smaller,” said Wale Aokunrinboye, Head of research at Lagos-based Sigma Pension. “In other countries where the laws are enabling, it forces everything to be insured and because of that, the insurance companies have large stash of cash.”
He explained that one reason why the pension industry has come up is that its regulatory environment is a bit firm, and predictable, and as such gives people confidence to put down money which helped the scheme to a large extent. “If we can raise the amount of insurance coverage in the country, I am sure you will see a tremendous boost in the economy and part of it has to be regulatory and legally driven. Certain things have to be made mandatory,” Aokunriboye told BusinessDay on phone.
A report by Afrinvest – a West African independent investment banking firm, on the growth of the insurance sector across the globe, described the Nigerian scenario as a “ sleeping giant’’ with low penetration and abysmal density.
According to the report, Nigeria’s insurance sector is still one of the most underdeveloped compared to its peers despite the country having a population estimated at 196.1 million people– a growing middle class and increased life expectancy rate for Nigerians (54.5 years average for men and women in 2017 from 53.4 years in 2016), the potential for growth in the sector is significant
The sector suffered a setback in the last two quarters of 2017, contracting 1.9 per cent and 15.7 per cent in Q3 and Q4 respectively despite growth recorded in the overall economy. It, however, rebounded in Q1:2018, expanding 18.1 per cent relative to 1.95 per cent growth recorded by the economy as a whole, based on data from the report.
At 0.3 per cent in Q2 2018, Nigeria had the lowest insurance penetration level (measured as insurance gross premium written as a proportion of GDP) amongst notable African countries – South Africa (14.7 per cent), Kenya (2.8 per cent), Angola (0.8 per cent) and Egypt (0.6 per cent).
Similarly, the sector’s density (a measure of industry gross premium per capita) is still one of the lowest compared to its peers – South Africa (US$762.5), Egypt (US$22.8), Kenya (US$40.5) Angola (US$30.5) and Nigeria (US$6.2).
“The insurance companies have not built trust and that is the issue. Trust is built on law and guidance which the industry seriously lacks,” Yola says.
PENCOM’s provides details about the names and phone numbers of all its 21 fund administrators. These assist the regulator in tracking complains across the board, industry experts told BusinessDay.
This cannot be said about the insurance sector regulator, as the number available on its site was out of reach as when BusinessDay reached out to get comments. The last time the sector released an annual balance sheet was in 2016 when it declared an asset of N703 billion despite having about 43 licensed agents.
MICHEAL ANI
