NIGERIA INSURANCE SECTOR VISION 20 : 2020 ;ATTAINING THE POSITION OF ONE OF THE TWENTY (20) LARGEST INSURANCE MARKET IN THE WORLDBY THE YEAR 2020

NIGERIA INSURANCE SECTOR VISION 20 : 2020 ;ATTAINING THE POSITION OF ONE OF THE TWENTY (20) LARGEST INSURANCE MARKET IN THE WORLD BY THE YEAR 2020

BY ADEOYE TAIWO BABATOLA (ACII, B.SC, HND)

FACT ABOUT NIGERIA ECONOMY AND THE RECAPITALIZATION

Government in the insurance industry through the process of recapitalization and consolidation are to

restore confidence of the public in the market and enhance international competitiveness of local
operators. The principal objective of the Reform is to have emergence of bigger and stronger players in the industry with enhance capacity. The Nigeria insurers in time past had operated on marginal scale and that accounted for why the market had not benefited much, especially IN THE OIL AND ENERGY BUSINESS. The country is much more likely to experience sustained growth if her insurance market develops properly.It is pertinent to note that insurance market development is related to IMPROVE FINANCIAL SECTOR PERFORMANCE and insurance market do not develop adequately without both public and private sector development in their infrastructure.

The then commissioner for insurance, Chief Okechukwu Chukwulozie in his remark on the reforms

said “one of the challenges facing NAICOM at the moment is how to make the shares of insurance

companies more attractive to high network individuals and corporate bodies, due mainly to poor

public perception of this industry”. He also noted that the issue of participation of local insurance

companies in the oil and gas insurance business is of paramount importance to the industry. If the

 provision of section 72 of the Insurance ACT 2003 could be adhered to allow enforcement of 45%

local content policy in the oil and gas industry, over $400m (N62b)is expected to be generated in two

years.In view to achieve the above ; The  Board and the Top Management of NAICOM with full

commitment resolved to  have the development of STRATEGIC PLAN from 2011 – 2012. The plan
is made up of 5 STRATEGIC GOALS

·         Analysis of our current position

·         Analysis of our environment

·         Analysis of our stakeholders

·         Review of our historic performance

v  Effective and accountable supervision

v  MDRI

v  Oil & Gas Risk retention

v  Training & Retention of Quality Staff

v  Insurance Law review

v  Enhanced Corporate Governance

·         Our critical success factor.

PECULIARITY OF OUR MARKET

ü  Where we were and where we are i.e. RECAPITALIZATION

	BEFORE	AFTER & EFFECT
GENERAL	N 200M	N3B (Increased by 1,400%)
LIFE	N150M	N2B (Increased by1, 233%)
REINSURANCE	N350M	N10B (Increased by 2,757%)

ü  Its effect on the industry and the economy.

INDUSTRY TOTAL GROSS PREMIUM INCOME

	GENERAL BUSINESS	LIFE BUSINESS
2006	81,583m (85.9%)	13,422m (14.13%)
2007	89,104m (84.56%)	16,274m (15.44%)

ü  No country like Nigeria – with over 250 ethno-linguistic group!

ü  Poverty status is highly correlated with adult literacy rates. : The National Bureau of Statistics on poverty and Irregularity Update disclosed on Monday, 13^th February 2012 that there is an INCREASE IN POVERTY RATE despite ECONOMIC GROWTH. This is a significant signal because, there is a correlation between the level on poverty in Africa and the level of insurance patronage.

                                                               POVERTY RATE

2004	54.4%
2010	69%

MEMORANDUM ON REVIEW OF OUR HISTORIC PERFORMANCE.

1.      GUIDELINES FOR OIL & GAS INSURANCE BUSINESS : It was issued by NAICOM as a pursuant to the provision of the insurance ACT 2003 and the NAICOM ACT 1997.

·         Naicom is primarily charged for regulating Insurance business in Nigeria in collaboration with the Nigerian Content Development and Monitoring Board (NCDMB) to ensure compliance with relevant provisions of the Nigeria oil & Gas Industry Content Development ACT 2010 and other laws relating to insurance

·         The guidline is issued in pursuant to the provision of section 50 of the Nigeria Oil 7 Gas Industry Content development ACT 2010, the Insurance ACT 2003 and the National Insurance Commission Act 1997. It is for the purposes of establishing uniform set of rules, regulations and standards for contracts of insurance within the oil and Gas Industry in Nigeria.

·         LOCAL CAPACITY: local capacity shall be defined s the aggregate capacity of all Nigerian registered insurers and reinsurers which shall be fully exhausted prior to any application for approval to reinsure any Nigeria oil and gas risks overseas. An insurer’s capacity for oil & gas policies is NWT RETENTION of the insurer plus its reinsurance treaty capacity. The reinsurance treaty capacity of a consortium of insurers is also acceptable. Any other reinsurer’s facility, other than treaty is acceptable as an insurer’s capacity, provided there is evidence that the risk has attached and cover provided by an acceptable security. 1% levy be paid to the commission within 15days of the receipt of the Approval In Principle (AIP).

·         THEMATIC GUIDELINES : It is worthy to note that Naicom has recently initiated a new guidline (THEMATIC GUIDLINES) which will replace the old one i.e THE OPERATIONAL GUILINES, to aid the operations of insurance players in Nigeia. 

2.      NAICOM PARTNERS NNPC TO RAISE LOCAL CONTENT IN OIL & GAS INSURANCE

The initiave was unfolded by the Minister ofState for Finance, REMI BABALOLA at the 2009 Insurance shareholders Parliament held in Lagos. Babalola also emphatically stated that despite the success in the RECAPITALIZATION OF THE INSURANCE COMPANIES, ENERGY RISKS WERE STILL SUBSTANTIALLY PLACED ABROAD and that the local industry seem to be  confronted with significant hurdles preventing full participation in oil and gas insurance-Thus, the Nigerian Insurance Industry should be able to participate OPTIMALLY in the domestic energy sector.

The RESPONSIBILITY IS NOW ON US TO DEMONSTRATE TO THE GOVERNMENT AND MULTINATIONAL OIL COMPANIES THAT WE HAVE THE CAPACITY & WORKABLE STRATEGIES FOR ACHIEVING & SUSTAINING THE LOCAL CONTENT TARGET.

We must invest in human capital- if the objective is to be achieved because the insurance industry like other sector in the financial services industry is knowledge-based and required continuous training and re-training, creative thinking and sustainable staff development policies.

3.      CORPORATE GOVERNANCE : Diving into the Corporate governance of the market through NAICOM introduction of CODE of BUSINESS ETHICS and PRINCIPLES ON CORPORATE GOVERNANCE for the industry, NAICOM have been able to enhance / ensure efficiency and accountability by both the BOARD and MANAGEMENT of Insurance companies. Alongside, elimination of fraudulent and self-serving practices among members of staff, the management and Board of insurance institutions in line with modern trends.

NAICOM in consonance with the code of governance initiated and publiched by the security and Exchange Commission (SEC) in 2003 considered the adoption of an effective corporate governance code as a priority.

CORPORATE GOVERNANCE : Manner in which companies are directed and controlled

                            THE VISION 2020 AND THE GROWTH POTENTIAL

The vision 2020 has required of us “the vision to be  the insurance industry of choice among the

emerging markets, noted for high market capacity, transparency, efficiency and safety, to attain the

position of one of the 20 largest insurance markets in the world by the year 2020”.

        - Goldman sachs predicted that Nigeria  will be the 12^th largest economy by 2050 ahead of

          ITALY, CANADA, KOREA etc. This shows that great minds and researchers outside the

          shores of Nigeria and Africa have also the seen the potential growth of our great

          Country,Nigeria

      - Economy has capacity to sustain over 10% in the medium term and achieve VISION 20: 2020

                                                                                                                   - SOLUDO

     - Nigeria is a bed of gas (6^th highest in the world). It is the world’s fuel of  choice

                                                                                                                   - SOLUDO

     - Nigeria have the target to move the contribution on insurance to our GDP from 0.32%i in 2005 to

       15.91% in 2020

For this reason, the Reform is to develop an insurance sector that drives and protects the economy

through effective and efficient market structure.

This vision can only be achieved through strategic planning, and the planning must take three

dimension

·       Short Term

·       Medium Term

·       Long Term

The global meltdown has engulfed both the developed and under-developed economy; hence the bailout is a PROPER STRATEGIC & ECONOMIC PLANNING.

The vision by the Late President Yar’adua is a good project planning, and must be further broken down into tactical approach to achieving the target which is the aim of this write up.

                                     THE NEW GENERATION OF RECAPITALIZATION

Prior to the announcement of the recapitalization in 2005, there were 22 insurance companies with a

market capitalization of N28.94b listed on NSE. But few years after, before now, there were 26 active

companies with a market capitalization of N683.1b, a 2,260% growth over two and a half year.

Presently there are 49 players in the industry which is a drastic drop from the total of 103.

The best way to optimally maximize the outcome of the recapitalization is through, but not limited to

thefollowing:

·         Intensifying the sensitization of the industry and operational awareness

·         Rapid expansion and strategic business acquisition

·         Improved visibility

·         All should implement an optimal insurance business model- a Medium Term strategy

                                  THE LATEST REGIME OF RECAPITALIZATION

Unlike the banks, who operates either as regional, national or international entities, insurance is setting the stage to operate RISK BASED RECAPITALIZATION.

Risk Based Capitalization and Solvency Regulation is aimed at deepening the Nigerian Insurance Market through the Nigeria Insurance “Market Development & Restructuring Initiative (MDRI) to check underwriting companies from taking risks beyond their financial and technical capacities

RBC is arrived at based on different categories of risks

ü  Asset Risk – fluctuation in market value of asset as a result of changes in market

ü  Credit Risk – amount due from policyholder, reinsurers or creditors

ü  Underwriting Risk – risks arising from under-estimating the liabilities from business or inadequate pricing

ü  Off-Balance Sheet Risk – a measure of risk due to excessive rates of growth, contigent liabilities or other items not reflected on the balance sheet

VERY IMPORTANT : The last point worthy of note is what I call “A Built-In Insurance strategy”: this is a strategy best known for wide spread of involuntary insurance purchase, where the cost of insurance on all goods/properties would have been a “built–in” on the subject matter. This is the fastest medium that could sporadically increase the level of patronage of a “ NEGATIVE and a NO DEMAND ”. This has been unwittingly used in some sectors where positive response was recorded: such as, the PENSION SECTOR, where Contributory Pension Scheme is in force and recorded drastic growth. This is simply because the pension contribution is removed from source, thereby not given the employees’ the option to contribute.