Every day, Emeka Chukwuka, 32, a graduate of one of the Nigerian universities, goes to Ojuelegba bus-stop in Lagos, Nigeria’s commercial capital, where he and other job-seekers glance through the dailies at newspaper stands. Last Tuesday, he visited his usual stand and argued over a number of issues.
His biggest argument was on the insurance industry. Chukwuka said he did not have any form of insurance and having one was the least of his problem. He was living in penury and needed money to solve his immediate needs.
“A lot people you see here are poor and unemployed. Any talk about insurance is absurd to us,” said Chukwuka.
Insurance companies in Africa’s largest economy are losing billions of naira in revenue as deteriorating economy continues to hinder the likes of Chukwuka from taking up a cover.
Insurance is a barometer for measuring human development index because during a period of boom, people acquire properties and are motivated to insure them against catastrophic events such as fire, accident and flood.
“Once economic activities stagnate, and disposable income is squeezed, nobody will be thinking of insurance,” said Ganiu Shefiu, head of actuarial services, Cornerstone Insurance plc.
Shefiu, who is an associate of Society of Actuaries United States of America (USA), said much of the revenue insurers declare is from the corporate world and that is because companies are mandated to do insurance.
“The bulk of money should be coming from individuals, but their disposable income has been under pressure because of economic conditions,” said Shefiu.
In terms of income, Nigerians are becoming increasingly poorer, with 8,000 citizens jumping into the extreme poverty train on a daily basis, according to Brookings Institution.
With 87 million Nigerians living below the $1.90 baseline, almost one out every two nationals (44 percent) lives in extreme poverty.
Unemployment rate in Nigeria averaged 12.31 percent from 2006 until 2018, reaching an all-time high of 23.10 percent in the third quarter of 2018 and a record low of 5.10 percent in the fourth quarter of 2010.
While GDP expanded by 2.34 percent in the fourth quarter of 2018, the country’s per capita income is abysmally poor as population is growing faster than the economy.
But Moronfola Monsuru, actuarial analyst at Wapic Insurance plc, said the risks are there whether the economy is good or bad. Monsuru said insurance is always the last on people’s scale of preference, and most firms are focusing on retail business as the probability of huge claims is lower.
“A deteriorating economy cannot stop fire from engulfing a building. You have to manage your risk to mitigate losses,” said Monsuru.
Aside from deteriorating economy, insurers are beset with myriad of challenges such as apathy towards insurance. Weak regulations take their toll as penetration remains low.
Despite having a population of nearly 200 million, insurance penetration in Nigeria is 0.30 percent, one of the lowest figures in the world. This compares with South Africa (14.7 percent), Kenya (2.8 percent), Angola (0.8 percent) and Egypt (0.6 percent).
Similarly, the sector’s insurance density (a measure of industry gross premium per capita), at $6.2, is still one of the lowest when compared to peers – South Africa ($762.5), Egypt ($22.8), Kenya ($40.5), and Angola (S$30.5).
While insurers in the United States, United Kingdom, and Asia acquire banks because of their strong capital bases, solid working capital position and a well-diversified revenue stream, their Nigerian counterparts are financially impotent and struggle without strategic direction.
For instance, the cumulative gross premium revenue of 23 largest insurance firms that have released December 2017 results stood at N322.98 billion, which compares with the N474.60 billion in gross earnings raked in by tier-1 lender, Zenith Bank.
Additionally, the N21.31 billion market capitalisation of AXA Mansard, the largest insurer by market value, is less than the N75.81 billion market value of tier-2 lender, Fidelity.
Experts are sceptical the industry will meet the N1 trillion 2020 target set by National Insurance Commission (NAICOM) over a decade ago, as operators continue to undermine themselves through outrageous pricing. They add that there are no actuarial inputs in pricing as insurers take the price from the brokers, but brokers do not have actuarial experience.
“It is true that we projected N1 trillion premium income sometime ago. Unfortunately, we could not achieve that because insurance operators failed to behave rationally,” said Sunday Thomas, deputy commissioner for insurance, technical, NAICOM.
“There was a point when third party motor insurance was N5,000, but it came to a point where people were charging N1,000. I am just telling you why we are not at N1 trillion,” said Thomas.
Bala Augie
