Nigeria’s 95% insurance potential attracting high profile investors
The influx of foreign investors into the Nigerian insurance industry in the last few years has further confirmed analyst’s position that the sectors potential is increasing investor appetite in Africa’s most populous black Nation. The potential which is linked to the country’s huge population over the country’s GDP, according a recent report by Barclays Bank presents the insurance industry as a highly untapped market.
Analysts at Barclays Bank recently took a hard look at the Nigerian Insurance industry in an unflattering report released in September 2015. The report drove home the point that when compared to the global average insurance industry penetration, Nigeria, which prides itself as aiming to be one of the top 20 economies in the world is only tapping into 5 percent of its insurance industry potential while 95 percent of the market potentials remain untapped.
In recent times, foreign investors including Old Mutual in Oceanic insurance; NSIA in ADIC; Sanlam in partnership with First Bank in FBN Insurance; Saham Finances in in Unitrust Insurance; AXA in Mansard; Greenoaks in Union Assurance and very recently concluded the acquisition of a 53.6 percent stake in Continental Reinsurance. This interest could only have been driven by the inherently strong potentials these global players have seen in the Nigerian insurance market.
Despite these potential, analysts believe that some key fundamental weaknesses that are holding back the industry needs to be fully addressed. Globally, the strength of a country’s insurance industry is measured by the level of insurance penetration – this is the total insurance industry revenues or gross written premium as a percentage of that country’s GDP.
It is obvious that foreign investors have seen this strong potential and are currently taking positions while hoping that the market would take-off. The Barclays report stipulated that these foreign owned insurance companies have taken interest in Africa and Nigeria in particular because of the inherent strong growth potentials. These potentials are drawn from Nigeria’s huge population of about 174m of which about 55% fall between the ages 15 – 64 years old (i.e. economically active population), a strong GDP per capita of about $3,000 and average real GDP growth rate of about 6.7% in the last decade.
However, the potential of the Nigerian Insurance market will not be achieved if certain factors are not urgently addressed by both insurance regulators and operators. Analysts have long contended that the travails of the industry are caused by both operators and regulators and they revolve around the following:
•Poor Product Awareness
•Distribution.
•Poor Regulatory Enforcement
Insurance products awareness is driven by industry adverts and public enlightenment campaigns. Insurance adverts are still very little compared to other jurisdictions and there doesn’t appear to be adequate funding or focus directed at massive wide-scale public enlightenment efforts.
More importantly though is distribution, which remains a major issue with the industry. There appears to be only one well developed distribution channel in Nigeria, i.e. the broker channel. The industry has focused on this channel to its detriment. The broker channel focuses on the corporate end of the market to the disadvantage of the retail market as brokers rightly use their expertise to serve the corporate market segment. This probably explains why as at the end of 2012, only 1.3million Nigerians had taken up any form of individual insurance (i.e. life, property, and even compulsory insurance like motor) (EFInA, 2012). Comparing this to a population of 168m (as at 2012), this represents an abysmal 1% population penetration.
In recent times a few insurance operators have tried to explore selling insurance through telecommunication operators. This innovation has given these operators access to a wider spectrum of the population and this has been widely embraced because of the convenience of buying insurance through the mobile phone. This has deepened the population penetration of insurance further than the 1% population penetration in 2012. For example, Cornerstone Insurance in its partnership with Airtel was able to acquire over a million customers from the subscriber base of the telecommunication giant. The partnership between AXA Mansard and MTN is assumed to have resulted in similar population penetration (considering the fact that MTN has a larger subscriber base). This implies that these two operators have more than doubled the population penetration of insurance in Nigeria (in just two years!) by partnering with these telecommunication operators to distribute insurance through telecommunication channels.
Insurance has traditionally been sold through agents and brokers. The agency and broker distribution networks of Nigerian Insurers are fairly robust however the industry seems not to have fully tapped into the opportunities in partnership with banks.
Bancassurance is a potent distribution channel in developed and developing countries where insurance penetration is high, but even though the Central Bank of Nigeria has released guidelines for Bancassurance, these guidelines are yet to be ratified, adopted or operationalized by the insurance industry. It is ironic that the $17.0bn banking industry is the industry that has even pro-actively sought to encourage and tap into the opportunities in Bancassurance while the core custodians of the business with only $1.9bn tunover watch.
The Bancassurance distribution channel was adopted in all parts of Europe and most other parts of the world and it has been successful. A few local insurance operators and banks have adopted this model and it has been mutually beneficial to both sectors. These partnerships have helped deepen insurance penetration due to the large distribution outlets that these Nigerian banks have. According to some estimates, the channel is responsible for about 5% of annual insurance revenues. This is with less than half of local banks being engaged in Bancassurance relationships. If all Nigerian banks were to have one or two Bancassurance relationship as stipulated by the new CBN regulation, the contribution of this channel to insurance revenues could more than double, thus helping to further bridge the 95% gap in untapped insurance potential.
Also the industry appears to pay little attention to distribution channels that could drive the retail market in Nigeria. Some of these channels have been adopted in other countries and have recorded significant successes. For example the sale of insurance through mobile telecommunication platforms. Kenya adopted this distribution channel through Safaricom’s M-Pesa, where insurance products were bought and sold via mobile telephones. This distribution platform spread fast because of its convenience to the retail customer. A few Nigerian operators have tried this in Nigeria and the take up appears to be encouraging. With Nigeria having over 120 million telephone lines, if 25% of these population of mobile phone users were to take up insurance through this channel this could imply an 18x growth in the number of insured individuals from 1.3 million to 25 million.
It is evident that once the issues of awareness, distribution and most especially improved enforcement from the regulators are addressed, the Nigerian insurance industry will be set on the right track to take its place not just as a driver of economic growth and protection but also achieve its true potential of being a $39bn industry.
Modestus Anaesoronye