last year, has brought about prospects of growth. With the minimum capital bases for different classes of operators increased by as much as over 2,757%, investments are trickling into the sub-sector. The planned re-entry of AIG, the global leader in insurance, into the country through Aiico Insurance Plc, is a response to new policies aimed at restoring confidence into the industry.
Re-capitalization & Industry Consolidation
Until the new capitalization benchmarks set for the insurance industry in September, 2005, minimum capital base requirements for operators were stratified as: N150 million for life, N200 million for non-life and N350 million for re-insurance companies. These requirements which most operators barely satisfied, underlines the lack of capacity in the industry.
With just about five per cent of the over 150 million Nigerians having at least an insurance policy, the industry also loses substantial business in the big markets to foreign underwriters, especially in the oil & gas and aviation industries. These presented a bleak outlook for one of the oldest industries in the country. That is before the consolidation programme was announced.
However, as from February 28, 2007, operators in the insurance sub-sector are to have capital bases of at least N2 billion for life insurance companies, N3 billion for non-life operators, N5 billion for composite insurance companies and N10 billion for re-insurers. The success of similar regulatory requirement for the banks informs measured optimism. From the standpoint of policy implementation, the banking industry consolidation programme is a good precedent, although the same level of success is in doubt for the insurance industry for reasons already described as investors fatigue and relative return on investment.
Nevertheless, there are reports of progress among the operators. According to a recent statement by the National Insurance Commission (NAICOM), the regulatory body for the insurance business in the country, over 20 merger proposals involving about 54 companies are being considered for approval. This is apart from acquisitions and organic growth programme being pursued by some underwriters, through private placements, rights issues and public offers.
With about four months to the deadline for meeting the new requirements, a number of foreign investment inflows are being reported. Weeks ago, Metropolitan Insurance of South Africa entered into the Nigerian market in a partnership with HEIRS Insurance Limited the life insurance subsidiary of the UBA Group. The reported re-entry of AIG into the country signals confidence of global insurance brands in the Nigerian market. A successful re-entry of AIG in their proposed relationship with Aiico Insurance Plc will definitely see a few more global brands enter into the country.
The reform in the insurance industry is not in isolation case. The Nigerian financial system had attracted the attention of policy makers with far reaching reforms introduced as far back as 2004. Apart from mandates handed to operators to inject more capital into their businesses, the regulatory environment has been active like never before.
Codes of corporate governance have been pushed to the fore. Anti corruption initiatives of the government has instilled some sanity into the financial services sector. And with stakeholder diversification through ownership dilution of shareholding, return on investment has become a critical factor.
Furthermore, government reforms for the financial services sector have in-built incentives for the operators. The local content policy of the government for the oil and gas sector will have the insurance companies handle 40 per cent of the underwriting business in one of the largest oil producing countries in the world. This percentage share of the underwriting business will increase to 70 per cent in 2010.
In the meantime, the compulsory life insurance policy for workers in the country is faced with some take off challenges. Following reform of the pension sub-sector, government had decided to have companies to provide their employees life assurance cover, in addition to making contribution to the pension accounts of their staff.
This initiative is having some teething problems right now, but with the progress already made in registering workers with Pension Fund Administrators under the new contributory regime, there is prospect that the policy will be implemented. This will expand coverage of insurance among the working population.
An immediate impact of the new era will be improved professionalism in the industry. With increased capacity and alliances with global insurers, the Nigerian underwriters will have access to technical and other skills to enhance professionalism in the sub-sector.
It had been a burning self regulatory issue for some time that some operators deliberately cut on industry set premium charges to gain advantage over the competition. This practice is encouraged where the numbers of operators are so many and collaboration made impossible. It also leaves unchecked reports of high cases of fake insurance documents in circulation in the country.
Expectedly, with enlarged capital base, insurance companies in the country will invest in information technology to improve service delivery and achieve channel efficiency. Operators will have to collaborate to operate a common database of policy holders to tackle the problem of document forgery. Hopefully too, the delay in the settlement of claims by the insurance companies would be tackled, as a confidence building mechanism.
Product Development and Channel Expansion
The pervasive cynicism about insurance in the country accounts for the low coverage of the risk underwriting business. In this regard, apathy towards insurance is a function of absence of persuasive value proposition encapsulated in insurance products specifically targeted at certain needs. Mr. Bob Gordon, Executive Vice President, AIG, Africa, alluded to this while in the country recently. He was quoted to have said "our idea is to develop the market through innovative product development and excellent customer relations."
Earlier in the year, the management of Royal Exchange Assurance Plc committed itself to this strategy by developing some innovative financial and investment products for the market. Some of the products were designed to serve certain needs that have always been left unserved. It is noticeable now that more insurance companies are focusing on this strategy in expanding their businesses. A few insurance companies are also transforming into financial services institutions, going beyond the traditional risk underwriting business to savings mobilization, investment advisory services and asset management.
Without doubt this strategy must be accompanied with excellent customer care, as opposed to the practice whereby policy holders see themselves at the mercy of their insurance underwriters when they have claims to make. In the era of universal banking, insurance companies will be required to deliver their products and services at the same level of efficiency as the banks in the areas of operational overlaps.
As envisioned by the Central Bank of Nigeria (CBN) in its consolidation agenda for the banks, more Nigerian banks now have full fledged subsidiary in some West African countries. With adequate capitalization and service innovations, this market is waiting for Nigerian underwriters to tap into.
Recently, Dr. Erastus Akingbola, CEO, Intercontinental Bank Plc, said that the new capital base benchmark for the insurance companies is just the starting point into the future in which he foresaw some insurance companies raising their capital base to N25 billion. His prediction is well founded on the current moves by some banks to achieve far higher than the benchmark set by the CBN.
In the meantime the website of NAICOM has made available to the public, the list of insurance companies under liquidation. The list is made available here to help the investing public isolate terminally ill institutions from those who currently are shopping for investment to achieve the capital base requirement for the industry. On the list are: Accelerated Insurance Co. Limited, Altimate Trust Insurance Co. Limited, Amicable Assurance Plc, Financial Assurance Company Limited, Fortress Insurance Company Limited, Gateway Insurance Company Limited, Lake Insurance Company Limited, Marine & General Assurance Limited, New Era Insurance Company Limited, Security Assurance Plc, Stallion Assurance Company Limited, Triumph Assurance Company Limited, Unity Life & Fire Insurance Co. Limited and Val Company Limited.