Regulatory shake-up recommended for insurance sector to unlock growth

Cynthia Ezekwe

In the midst of growing concerns about the state of Nigeria’s insurance sector, industry analysts are calling for a radical overhaul of the country’s regulatory framework.

The sector’s inability to keep pace with global standards, they say, demands a comprehensive review of insurance regulations. This, in turn, is expected to drive sectoral expansion and competitiveness, helping Nigeria realise the significant growth potential of its insurance industry.

Nigeria’s insurance sector continues to lag behind global standards, contributing less than one percent to the country’s GDP. Industry analysts point to outdated regulatory frameworks, limited market penetration, and low consumer awareness as the key factors impeding the sector’s growth.

With a population of over 200 million, Nigeria is a potential goldmine for the insurance industry, provided the right conditions are met, say industry experts.

They highlighted the country’s large and diverse population as a significant opportunity for growth if harnessed effectively, coupled with the introduction of new innovative products and distribution channels to reach new segments of the market beyond traditional channels.

In a leadership academy programme titled “Business Insights With AO,” Austin Okere, the founder of CWG Plc, a pan-African systems solutions company, expressed dismay at the low rate of insurance penetration in Nigeria, Africa’s largest economy.

“I was deeply shocked to learn that the insurance industry in Nigeria contributes less than 1 per cent  to the GDP.  The banking industry in Nigeria on the other hand contributes 10 percent.  So the question is: Why is it that globally insurance companies are bigger than banks? But in Nigeria, the insurance companies are very negligible compared to the size of banks?’’ He asked. 

He attributed the low penetration rate to lack of effective  regulation  and transparency, stating,  “If you look at the banking industry in Nigeria, the regulation of the Central Bank of Nigeria and the other regulatory bodies is very tight. Whereas you cannot say the same for the insurance industry.’’ 

In his analysis, Okere highlighted the importance of a robust regulatory environment in attracting investment and driving growth in the insurance industry.

In a chat with business a.m., Gus Wiggle, founder of Carefirst Consult, a claims management company observed that insurance industry in Nigeria operates under a prescriptive and outdated legal framework that hampers its growth and development, adding that the National Insurance Commission (NAICOM) as the main regulator faces challenges in ensuring compliance, supervision, and protection of policyholders and beneficiaries. 

Wiggle further emphasised the need for increased consumer education and awareness, stating: “The insurance industry in Nigeria needs to invest more in creating and disseminating insurance knowledge and information to the public, especially at the grassroots level. The industry also needs to collaborate with relevant stakeholders such as the government, media, civil society, and religious groups to promote the culture and benefits of insurance. 

He stressed the need to increase capital and human resources, noting that the insurance industry in Nigeria needs to raise its capital base to meet the minimum requirements set by the National Insurance Commission (NAICOM), as well as to improve its solvency, and competitiveness. 

Wiggle therefore suggested that  NAICOM enhances its capacity and authority to regulate, supervise, and enforce the rules, and standards of the industry as it is pertinent the industry  adheres to ethical principles, and professional codes of conduct. 

Experts have also underlined the importance of a risk-based approach to supervision for the insurance sector’s stability, arguing that NAICOM should adopt this approach to focus on key areas such as underwriting, claims settlement, and solvency.

They explained that risk-based supervision would enable insurers to manage risks more effectively, thus reducing potential losses and building policyholders’ trust. This approach would ensure that insurers operate within established risk parameters, safeguarding policyholders’ interests and promoting sectoral stability.

In addition to regulatory reforms, industry stakeholders also advocate for increased infrastructure development, particularly in underserved regions, as a means to accelerate growth and expand insurance penetration. They argue that such investments will not only boost the insurance sector but also contribute to Nigeria’s overall economic development, ultimately advancing the country’s socio-economic progress.

Based on the challenges seen hindering the development of the insurance sector, experts assert that addressing Nigeria’s outdated regulatory frameworks, limited market penetration, and inadequate consumer awareness would lead to an increase in the insurance sector’s contribution to the country’s GDP. They believe that the right regulatory environment will facilitate investments in consumer education, creating the necessary conditions for the industry to flourish and reach its full potential.