Fitch Ratings, one of the global rating agencies, has identified the “low average earnings and widespread poverty” in Nigeria as some factors weighing on insurance affordability and the growth of the sector.
The rating agency stated this in its latest Nigeria Banking and Financial Services Report for the third quarter of 2020, seen by Naija247news.com
According to the agency, these factors have continued to limit the outlook for premium and even the more affluent middle-class consumers tend to avoid purchasing insurance, which also hampers the growth of compulsory basic insurance lines such as motor vehicle insurance.
“Nigeria’s potential consumer base needs to be educated more about the benefits of both life and non-life insurance coverage to support more robust growth in the sector,” the agency added.
It, however, predicted that with a market supported by the country’s steady economy and large population, Nigeria’s insurance sector will enjoy a period of growth and development over the medium and long term, albeit interrupted by a slower pace of growth in 2020 due to the effects of the COVID-19 pandemic.
“We forecast premiums in the smaller, life insurance market to increase by a downwardly revised 4.8 per cent in 2020 to reach a level of N179.81 billion amid a weaker economic backdrop and higher inflation.
“We see strong growth in life premiums over the medium term to reach N217.96 billion by 2024. We forecast premiums in the larger non-life insurance market to increase by a revised 2.9 per cent rate in 2020 to reach a level of N248.85 billion.
“We expect this trend in growth trajectory to continue over the medium term with non-life premiums reaching N321.53 billion by 2024,” it stated.
According to Fitch, in spite of Nigeria’s large population, only a small proportion purchases life insurance whose premium currently accounts for 41.9 per cent of the overall insurance spending in the country.
Low income and a lack of understanding of the benefits of life insurance remain the most important obstacles facing life insurers, it stated.
On the other hand, Fitch anticipated that Nigeria’s non-life insurance market was set for a strong performance over the medium term.
However, as is the case in most other countries where non-life insurance is at an early stage of development, Nigeria’s motor vehicle and property insurance lines dominate the overall non-life segment, it added.
It said: “Nigeria’s insurance market is highly fragmented in both the life and non-life segments, with just four companies holding over five per cent market share in the life sector and six within the non-life sector. The market is highly competitive and we expect this to continue as more foreign players capture more market share.
“The Nigerian insurance industry is structured around four types of players: insurers and reinsurers, insurance brokers, agents, and loss adjusters. Brokers are thought to control about three-quarters of all insurance premiums in Nigeria.
“Specific segments that remain intensely competitive include investment products, life risk products, general insurance and health insurance (not medical scheme business). Currently, the industry consists of approximately 57 companies, compared with 140 registered insurers in 1994.”
The National Insurance Commission (NAICOM) last month extended the deadline issued to insurance companies to raise their minimum paid-up capital to September 2021. The recapitalisation deadline had earlier been fixed for December 31, 2020, which became not feasible following the economic disruptions caused by COVID-19. Insurers now have up to September 30, 2021, to fully recapitalise in a two-phased plan.
The commission had explained that the pandemic had made it difficult to proceed with the December 31, 2020 recapitalisation deadline, adding that a review of the recapitalisation timeline has become imperative in order to mitigate likely negative consequences of COVID-19 on the exercise.
The Director, Policy and Regulation, Mr. Pius Agboola, extended and segmented the recapitalisation process into two phases.
Insurance companies are requested to meet 50 per cent of their minimum paid-up capital for insurance and fully comply with the remaining 50 per cent approved minimum paid-up capital not later than September 30, 2021.