Credit insurance drives middle class acquisition of assets

The growing middle class and the demographic structure of the Nigerian population is skewed to favour credit insurance and asset acquisition. This is becoming more evident in the purchase of cars and other household equipment by many young Nigerians, BusinessDay investigation has revealed.

Though analysts see motor insurance being favoured more by this development given the fact that most young men want these cars to keep up with trends of job demand rather than luxury items as it used to be in the past.

Afrinvest (West Africa) Limited had reported that non-life insurance business in the last five years skewed towards motor Insurance. “The drive would be most significant in third party motor insurance, which beyond having been made compulsory and now enforced under the insurance industry Market Development and Restructuring Initiative (MDRI), majority of the middle class now sees motor cars as necessity rather than luxury.”

According to them, the growth in motor insurance premium (especially third party policies) has also been fuelled by the rapidly emerging middle class in Nigeria as private cars are fast becoming a necessity rather than a luxury.

The report states that motor insurance premium grew by 22.5 percent between 2005 and 2009, and the analysts expect this growth momentum to steadily increase as compliance for compulsory motor insurance level increases.

The report, according to policy proportion shows that fire insurance, another compulsory general insurance policy, also showed an impressive CAGR of 18.7 percent between 2003 and 2009 owing to greater awareness of the policy, as well as the increased spate of real estate development in the economy.

Afrinvest say there is high prospect for growth in the industry, stating that the consolidation of the industry helped to partially address some of the noticeable weaknesses that engendered significant “premium flight” in the industry where large insurance policies were being underwritten by foreign companies.

“The recapitalisation requirements also created an environment for the players to penetrate domestic markets and also expand into other regional markets. However, we opine that the current minimum capital level is low, in absolute terms, relative to emerging market peers with the consequence that the market still has a disproportionately large number of insurers, the analysts said.

To them, in the medium-to-long term, it’s expected there will be another round of market -induced consolidation for greater risk retention capability commensurate to budding opportunities in the sector.

In a chart with a set of middle class workers, averaging 30 and 45 years old, they said ownership of private cars are not in any way a luxury because you need it to get to work on time as working in places like Lagos involves long travels on a daily basis.

For Dennis who works in a private equity company in Victoria Island, “I doubt how I can be able to get to work each without a car to myself. I leave the house as early as 5.30am every morning to be able to get to office by say 8am, and this has become possible because I drive myself, and so do not depend on commercial vehicles to leave for work.”