The Nigerian Insurance sector is critical to propelling income equality and reducing the poverty level of any society, but the industry’s performance has continued to drag amid many factors, such as; low underwriting capacity of players, lack of trust by consumers, poverty and the inadequacy of distribution infrastructure. These factors have jointly contributed to the abysmal level of insurance penetration – the proportion of insurance business to the gross domestic product over the years.
The Nigerian Insurance sector remains largely underdeveloped with Insurance penetration still at c.0.5% to GDP. The sector which contracted by 18.67% y/y in the Q3 GDP report released by the National Bureau of Statistics (NBS) is set for a deep recession in 2020. The Covid-19 pandemic effect has increased health, travel, and business disruption claims. These claims, coupled with underwriters’ inability to write risks in Q2 and the tapered household income should amplify the sector’s expected recession.
In a bid to rid the sector of these known drags, the National Insurance Commission (NAICOM), the primary regulator in the industry, launched its recapitalization exercise in May 2019. The plan’s proponents intend to improve the industry’s minimum paid-up capital in each business segment, thereby solving premium flight issues that have continued to plague the industry. Following the lingering impact of coronavirus, the deadline was adjusted from June 2020 to December 2020 to implement Phase I of the project while the deadline for the second phase’s performance was moved to September 2021.
Some players have called for an extension of the regulator’s deadline given the impact of Covid-19 on their businesses. However, most of the industry’s bellwethers have entirely shored-up their minimum paid-up capital to the required level. In our view, firms that are yet to meet the required capital threshold may likely lose out on the opportunities available on the supply side of the market. Furthermore, for the industry to thrive, the regulators may also need to deepen micro insurers’ activities in the Nigerian economy.