Emergent opportunities for investors in the insurance industry

By Ekerete Ola Gam-Ikon

Is it not intriguing and provoking that in the year global and national economies are dipping and counting losses, and indeed, our country is in recession, the insurance industry welcomed investors that made significant moves and earned the approval of the regulator, National Insurance Commission (NAICOM), to commence operations in Nigeria? One Reinsurance company, one General Insurance, three Life Specialist Insurance companies and two Takaful companies were all duly licensed, recently, after meeting the requirements of the law guided by NAICOM to operate in these respective categories.

Importantly, I should remind us that these companies had their investors putting together funds necessary to meet the new capital requirements of N20 billion for Reinsurance companies, N18 billion for Composite companies, N10 billion for General Insurance only and N8 billion for Life Insurance only, with deadlines of December 30, 2020 for 50 percent and September 30, 2021 for full compliance. So, this unique feat achieved by the insurance industry, led by NAICOM, is not only challenging the intuition of investors but also giving the licensees much more to bite in terms of justifying the decisive postures of their investors.

While investment analysts have not stopped asking why anyone should be interested in an underperforming sector like insurance, those that know the peculiarities of investing in insurance have stated that they ought to have invested during the last recapitalization window of 2007/2008, about 12 years ago.

The truth, as it is becoming clearer, is that any significant investor in the insurance sector probably needs about a decade of studying the operating environment for insurance, then consider the options, as they always seem to emerge, and win the approval to enter the space. This is the story of a leading Private Equity Firm in Nigeria that has made, undoubtedly, the most significant acquisitions of insurance businesses (three as at last count) within 2020!

Another amongst the recently licensed operators had been deliberately organizing its insurance portfolios and relationships, placing them over the years with one of the leading market players but now have enough to enable it enter the market from a strong position immediately.

Investment in the insurance industry has always been different and often misunderstood by most investment and stock market analysts. If you compare it to the narrative behind the Chinese bamboo which stays longer in the soil but shoots quite high within a short time of sprouting out, you will not be wrong. Insurance has remained the preferred choice of long-term investors globally and increasingly so, in Nigeria and Africa, with greater opportunities when you consider that relatively fewer companies have hit the centenary mark.

The business of insurance needs time and takes time, like no other business, to reach the path of growth in any sustainable manner and investors that understand this have seen justifiable returns in years past, not only from quoted companies but also in the unquoted but well managed privately owned companies. Sometimes, even when the numbers do not look good, the investors, though worried have learnt to wait with the knowledge that the investment would subsequently pay off.

Quite often, these investors in the insurance industry are attracted by the access they get to the funds generated through premiums and the leverage it affords them to increase their stakes in permissible investment vehicles like real estate. It is hardly the dividends that attract investors to insurance, rather that float which they can hold for some period of time before customers (policyholders) come knocking with claims.

The new vista created by digital technology has revealed more opportunities for investors in the insurance industry in Nigeria and elsewhere.

Would we not rather say “Thank you to COVID-19” for enabling our reliance on webinars and other online/mobile platforms to perform our roles and keep our customers satisfied? Many who argue that insurance is still highly driven by person-to-person relationships, arguably, assume that the prospective buyer indeed needs the story of that insurance sales rep, thus failing to recognize that the behaviour of consumers have been disrupted by several fintech offerings and actions.

With this new policyholders’ expectations have emerged newer opportunities for investment in the insurance industry’s support infrastructure, to enable a more complete buyer experience that could drastically change the insurance industry. Insurance incumbents have seen the need, for example, to move away from trying TO FORCE policyholders to read their policy documents, and rather convey same details in friendlier simplified English through convenient devices that allows reading on the go. A few are already contemplating translation into local languages and audio versions with the hope that they can convince NAICOM of their potency to deepen insurance penetration in Nigeria.

Smart investments in digital technology to enhance the experiences of insurance policyholders are the next BIG THINGS for the industry in Nigeria and Africa! I will like to tell the story of the insurance company that has robots welcoming visitors at the reception area, issuing certificates of insurance and other mundane things that humans do to create a “layer of delay” for the customer (policyholder).

The investments needed in the insurance industry in Nigeria are those that should support the advancement of insurance technology (Insurtech) to engage and onboard individuals and microenterprises that have remained grossly uninsured and underinsured. Probably, it needs to be restated that 98 per cent of Nigerians DO NOT HAVE any form of insurance in spite of the risks of insecurity, poverty and uncertainties we live with.

Specifically, no investment in data science and data management for the insurance industry will be idle and untapped; the market eagerly desires it for effective and efficient service delivery to stakeholders.