NIGERIA @ 57: Insurance industry grappling with low penetration 57 years after
As Nigeria marks its 57 years of independence, insurance operators and industry stakeholders believe that the over 90-year old industry has all the potential to contribute reasonably to the country’s GDP if the necessary structures and policies are put in place.
The history of insurance business in Nigeria dates back to the early 1900s, when major European business conglomerates, particularly after the amalgamation, began to establish business footholds in the country.
Beginning with the Royal Exchange Assurance Company that commenced operations in the country in 1918, the sector has also experienced various challenges, some of which the industry is still grappling with till date.
The challenge of contribution to GDP, which currently stands at 0.4 percent despite the country’s huge population of over 170 million, leaves for continuous discussion on why insurance has not made the expected mark given the huge potential and available natural resources.
At every stakeholder-gathering, reasons adduced for this situation have been largely on low awareness and cultural beliefs, believed to be the underpining factors for patronage.
But beyond these, experts say that low purchasing power of the citizens due to poor state of the economy, are critical to insurance sector growth because it is when individual economic power is growing that purchase of insurance picks up.
While operators and stakeholders in the industry are trying to implement transformational strategies that should improve service delivery and confidence building, to attract the interest and trust of consumers, the role of government in providing the needed operating environment is key. This takes us to efforts of government in policy framework and implementation as necessary fundamentals to improve the economic life of the citizens, such that people can afford to take insurance for protection of their economic activities and estates.
The last one year of President Muhammadu Buhari’s administration, which came with the promise to focus on infrastructure, diversify the economy and check corruption through efficient deployment of government resources that gave a lot of hope to Nigerian’s including the insurance industry for increased growth, was yet to be impactful.
The anticipation was that, investment in infrastructure including rails, roads and mass housing would spike insurance activity both directly and indirectly, along the economic value chain which will require different types of insurances cover for people and assets in those sectors.
While the diversification of the economy away from oil was also hoped would spike insurance uptake in other facets of the economy including agriculture, mining, and the real sectors.
At the same time, insurers had hoped that the fight against corruption would check diversion of budgetary allocations for insurance to other areas by government ministries, agencies and parastatals, as has been the case many years ago.
But over two years gone in the life of this administration, not much has been seen in terms of ‘project execution’ that would have resulted to meaningful impact on economy and insurance business, as the country went into recession with dwindling revenue and increasing public debt.
So, rather than see the expected growth, insurance sector, like other industries, has been grappling with economic uncertainties, scarcity of foreign exchange, high inflation, fall in oil prices, dwindling revenue and attendant impact on other sectors particularly manufacturing.
The incessant loss of jobs, business closures affected insurance very reasonably, as individuals and corporates dumped their insurance packages or cut budget for insurance in other to meet up with basic needs.
The Federal government on its part could not meet up with its insurance obligations, in terms of paying premiums for most of government insurable assets.
This is also not different from most state governments that have been unable to pay salaries and pensions. The past years has also been tough for them, and so have failed to meet their insurance obligations including group life insurance for employees as well as assets.
Funmi Babington-Ashaye, president, Chartered Insurance Institute of Nigeria (CIIN) said with the economy experiencing serious macroeconomic challenges which currently manifest in sharp drop in productive and economic activities, high unemployment and crime rates, delinquent credit facilities and failure of many businesses, the insurance business is inevitably affected.
She said that although the nation has, happily, exited from recession, we must acknowledge the fact that many businesses and individuals are still going through financial and economic crises caused largely by happenings in the local and global business environments, over which they and insurance practitioners have no control
While some successes has however been recorded in terms of foreign investment into the industry with the coming of global big players that are coming to establish in Nigeria, there is hope that there will be turnaround in the sector in no distant time.
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