Nigeria is operating a fragmented financial sector which is working against the accurate record of its growth on the financial inclusion goal of the Federal Government.
The Commissioner for Insurance, Nigeria, Alhaji Mohammed Kari, made this known at the just-concluded 46th African Insurers Organisation(AIO) held in Johannesburg, South Africa.
He further disclosed that the fragmentation of the financial sector in Nigeria is hampering the growth of Insurance industry in the country.
To this end, he said commission is working with other financial sector regulators to see how they can come with a consolidated penetration rate that will reflect the true insurance penetration rate of the country.
He stressed that the fragmented financial sector has always worked against the insurance sector when government is making financial projection and planning.
He pointed out that unlike in most countries where the financial sector only has one regulator directing activities of the banks, insurance companies, pension fund operators and Health Management Operators (HMOs), Nigeria has series of regulators, each controlling each sub-sector of the financial sector.
He said the Central Bank of Nigeria (CBN) controls the banks, the National Pension Commission (PenCom) controls the pension fund operators while the NAICOM regulates the insurance companies, whereas, in some countries, these sectors were considered as one and are regulated by a single regulator, which gives the financial sector of these countries good ratings because the achievements are counted as one.
He said: “Whereas pension and health insurance are classified as the products of insurance industry in most countries, Nigeria’s case is an exception.
“Nigeria operates a fragmented financial sector which restricts insurance sector to only the conventional insurance products and services. Pension is seen as a separate industry as well as health insurance when other countries classify pension and health insurance as being under the insurance industry. This is a misnomer, a situation that is affecting the growth of the sector and the country’s rating among other financial sectors in Africa and across the world.
“Such fragmentation is one of the reasons why insurance penetration is said to be below one per cent, thereby, limiting the contribution of the sector to the nation’s Gross Domestic Product(GDP). If health insurance and pension products are added to the insurance industry, insurance contribution to GDP would rise, as well as the penetration rate which will make Nigerian insurance industry compete with its peers across the world.”
Although, he believes Nigerian insurers must be responsible in meeting and surpassing customers expectation in the area of product delivery and prompt claims payment, he noted that, the low risk retention capacity of the sector also needs to be addressed.
He noted that the ongoing recapitalisation exercise will allow local insurers to retain huge risks in the country, thereby, avoiding premium flight, that will, in the long run, increase the profitability of the sector and its impact on the nation’s economic growth and development.
He however, added that the recapitalisation is long overdue as foreign exchange rate, asset replacement values as well as claims volume have increased in the last 12 years, and operating with the current capital base is putting insurance firms at risk.
“Insurance operators are fond of resisting recapitalisation exercise whenever the idea is mooted. Some insurers prefer to continue to write huge risks in aviation and marine sectors, with small capital, a development that is responsible for why some underwriting firms are struggling to pay claims,” he added.