2021 Outlook: What to expect in the Nigerian insurance industry

By Zainab Iwayemi

• Projected to undergo a shift, emergence of new insurance market in Nigeria

The year 2020 saw many industries in Nigeria stagger off their feet due to different events, such as the global pandemic, Covid-19, and #EndSARS protest that disrupted general economic activities in Nigeria. This is particularly true of the insurance industry, as some insurance companies have lamented the brunt they suffered as a result of these crises, using them as an excuse for not meeting up the 50-60 per cent part minimum capital base stipulated by the National Insurance Commission (NAICOM) for the year-end.

Despite the year’s event taking a huge blow on individuals, organisations and the government, some insurance companies have shown resilience and great commitment for growth as others have reported claim payment during the period, while others are still collating total losses. Though, Sunday Thomas, the Commissioner for Insurance, has urged insurance operators to rise to the task of reinforcing the economic resilience of individuals, businesses and the economy at large.

The industry has, over time, battled with low yield and high expenses ratio, which could be tackled with, improved service quality, a rise in technical reserves and higher investment yields. But on the flip side, the high contingency liabilities and low policy reserve, coupled with regulatory actions, further threaten growth in the industry. Consequently, trust deficit, low penetration, low investment yield and high loss ratio constitute the weaknesses faced by many insurance firms.

In spite of the weaknesses exacerbating threats to the industry, opportunities available in the sector would require deliberate strategy and a massive repair of the trust deficit that seems to have undermined underwriting income. This could be achieved if stakeholders could capitalize on the increased capital expenditure by the federal and state governments, GDP growth, micro-credit as well as the large uninsured assets in the insurance market. Yet, Nigeria’s enormous population could act as a catalyst or large headroom for life policy growth, thus enabling MSME market growth.

What to expect in 2021

As the year 2021 unfolds its potentials gradually, there are high expectations as to what the New Year beholds. It is expected that 2021 would encompass a better experience for the insurance industry, according to industry analysts.

The gradual easing of the lockdown, as a result of the Covid-19 pandemic which saw the crippling of the operational activities of some insurance firms – whose roots were not so deep – could bring a glimmer of hope to some firms who may have been seen as unlikely to recover from the pandemic shock in many years to come.

This coupled with the sudden claim by victims of the #EndSARS protest and the push for capital increase by industry regulators has created uncertainty around the insurance market.

Despite the foregoing, several analysts have opined that the drive for growth and innovative service offerings within the insurance landscape will be hinged on the consolidation of the industry.

Ekerete Ola Gam-Ikon, an insurance consultant and management-strategy expert, he projects that the year 2021 is likely to see insurance firms that are late to the recapitalisation table faced with a serious marketing challenge. But he hopes that claims payment will take the priority position, hopefully.

“Claims will take the priority position in the new year, so insurers that are late or deny claims unreasonably will face serious marketing challenges. Importantly, Nigerians need help to recover from the pains of 2020 and the insurance industry is expected to join others in the drive to bring relief to Nigerians. A more active CSR regime is desirable,” he said.

The insurance consultant further noted that much is expected from the newly licensed insurers to change the landscape and deliver innovative services and products to existing and emergent policyholders. He also stated that the regulators and operators should work harder to promote insurance towards ensuring that it is discussed and embraced at high-level of governance in both the private and public sectors

In a similar development, Financial Derivative Company, FDC, a research and financial advisory company, in its forecasts for the year projected that the insurance industry in 2021 is likely to witness:

• Consolidation across the industry and that, this will be driven by the need to meet up with the new capital requirement for insurers;

• The industry’s attractiveness will deteriorate;

• Banks encroaching on the industry space through the HoldCo strategy might stifle competition;

• The possibility that the increasing poverty rate and decline in purchasing power will make the idea of insurance unthinkable to many Nigerians;

• A need for players to offer specific products desirable to various income and demographic levels;

• And the recent #EndSARS crisis, which presents an opportunity.

Conclusively, with the expectations in mind that there will be a marginal rise in the gross domestic product (GDP) in 2021, coupled with some drastic monetary and fiscal policy stances by the authorities, the insurance industry has been projected to undergo a shift which will serve as the redefining moment for the emergence or birth of a new insurance market in Nigeria.