Insurance sector outlook positive despite economic headwinds, analysts say
As the economy contends with declining revenue over falling oil prices and depreciation of the naira, which may affect premium income of insurance companies, the sector has the potential to grow volumes and enhance shareholder value, analysts have said.
This will require that insurance companies device means to take advantage of growth opportunities around it that would not only increase its penetration but enhance awareness and contribution to GDP.
Insurance sector in the most populous black nation of Africa, Nigeria contributes barely o.65 percent to GDP and less than 1 percent in penetration, making it third largest in Africa with premium size of about N300 billion as at the end of 2014 financial year.
Bismarck Rewane, CEO, Financial Derivatives Company Ltd who spoke at the Insurance Sector Outlook for 2015 organised by the Chartered Insurance Institute of Nigeria (CIIN) said in the mist of challenges there are also opportunities.
Speaking on the topic “Economic Policies of Government Issues, Challenges, Prospects and Implications for Insurance Sector” said Young and growing population of approximately 170 million people present a huge growth opportunity , even at 2.6 percent annual growth rate would have accommodated 4 million of the population.
“Stable economic growth projected at 6.2 percent is favourable for business growth and insurance as an important arm of the financial services market would benefit, says Rewane.
He also emphasised on opportunities in the country’s technological advancement, where mobile telecommunication phone ownership currently stands at 84.9 percent in urban areas and 55.6 percent in rural areas.
“Sale of life insurance using mobile phone network to 126million active lines would definitely boost insurance penetration, Rewane stated.
Bola Temewo, president, Chartered Insurance Institute of Nigeria said the Institute has provided this platform annually to empower industry operators with the required knowledge on economic fundamentals to guide their business decision during the year and going forward.
There is no doubt that businesses are facing hard times, so the relevance of this forum at the beginning of every financial year cannot be over emphasised, particularly as the economic faces difficult times as result of dwindling oil prices, falling government revenue and depreciating value of the naira, Temewo stated.
According to Business Monitor International the Nigerian insurance market remains at an embryonic stage of development with the combined assets of the country’s insurers comprising only a tiny percentage of GDP and total premiums lagging behind more developed markets such as South Africa. “That said the past few years have seen considerable expansion in the sector as rapid economic/population growth and rising prosperity have boosted demand for life and non-life products.”
According to MBI, future growth will be mitigated by currency market movements linked to falling oil prices.
By all measures insurance remains a relatively undeveloped segment of Nigeria’s financial services sectors comprising just 0.3 percent of overall GDP in 2014 in terms of the value of gross premiums written. This low rate of penetration is reflective of a number of factors which have combined to undermine purchases of insurance coverage.
From a very low base the past few years have seen a steady increase in the value of premiums written. This has been particularly apparent in the life insurance market where gross premiums increased by just under 14 percent a year on average over 2012-2014.
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