Answer ... The Nigerian insurance market is currently underperforming, but has great future potential. Following a change in the management of the National Insurance Commission (NAICOM) in April 2020, expectations of a more collaborative regulatory approach are high, given the pro-industry development mindset of the new leadership. Developments and trends worthy of note include the following.
NAICOM has promising strategic plans to move the industry forward, but the implementation of these plans must be efficient and effective. The strategic plans are aimed at:
- addressing industry challenges;
- maintaining the safety and soundness of insurance institutions; and
- enhancing the technical skills of industry operators and regulators.
NAICOM aims to promote the stability of the insurance sector by:
- addressing the issue of outdated legislation and lobbying for the enactment of a new NAICOM Act and Insurance Act; and
- addressing unhealthy competition within the industry.
It further aims to optimise the development of the insurance market by:
- increasing insurance penetration;
- properly monitoring operators’ market conduct;
- automating regulatory processes; and
- eradicating delays in regulatory approvals.
Additional aims of NAICOM include:
- ensuring adequate protection of policyholders, shareholders, other beneficiaries and the interests of the general public; and
- promoting trust and confidence in NAICOM by building consumers’ trust and raising public awareness.
As in many emerging markets, the insurance outlook for Nigeria is positive, due to the low insurance penetration rate. For example, between 2014 and 2018, the oil and gas sector grew at a rate of 9% per annum, and marine and aviation at a rate of 10% per annum. In 2018, oil and gas insurance and marine and aviation insurance accounted for 34% and 11% respectively of non-life gross premiums. It is therefore unsurprising that Nigeria is experiencing a gradual increase in foreign participation in the industry, with the entrance of international underwriters. According to NAICOM, more than 12 foreign investors entered the country between 2012 and 2018. Major deals included the following:
- AXA’s investment in Mansard;
- Swiss Re’s investment in Leadway Assurance;
- Prudential’s investment in Zenith Life Assurance;
- Liberty Investment’s investment in UNIC Insurance;
- Allianz’s investment in Ensure; and
- InsurResilience Investment Fund’s investment in Royal Exchange Plc.
The market has also seen a lot of activity by private equity investors.
In March 2021, NAICOM published its Corporate Governance Guidelines for Insurance and Reinsurance Companies in Nigeria, which will take effect from 1 June 2021. Replacing the Code of Good Corporate Governance for the Insurance Industry in Nigeria of 2009, the guidelines were issued in collaboration with the Financial Reporting Council of Nigeria with the aim of assisting in the implementation of the Nigerian Code of Corporate Governance, and should therefore be read in conjunction therewith.
In November 2020, NAICOM issued five new underwriting licences to:
- Heirs Insurance Limited (General);
- Stanbic IBTC Insurance Limited;
- Heirs Life Assurance Limited;
- Enterprise Life Assurance Company Nigeria Limited; and
- FBS Reinsurance Limited.
This, in addition to the influx of foreign underwriters and the recent licensing of microinsurance companies in Nigeria, is projected to intensify competition among operators.
The enactment of the Finance Act (1/2020) removed the discriminatory tax regime applicable to insurance companies, to the great relief of stakeholders. As a result of the amendment of the Companies Income Tax Act, insurance companies can now carry forward losses indefinitely – unlike under the pre-existing law, which specified a four-year limitation period. Although there is still room for improvement, the changes have reduced the ambiguity with respect to the tax treatment of the insurance sector, and will improve the ease of doing insurance business in Nigeria and make the sector more attractive for investment. The successor Finance Act (2/2020) continued with this new practice of ensuring that the insurance sector receives equal treatment to other sectors.
Meanwhile, non-traditional insurance product offerings are increasingly being introduced, such as:
- microinsurance;
- cyber-risk insurance;
- small and medium-sized enterprise insurance;
- agricinsurance;
- agrictech partnerships; and
- an abridged vehicle insurance offered by AXA Mansard in collaboration with Uber which, in addition to the usual vehicle cover, also covers the rider’s medical expenses in the case of death or disability as a result of travelling with Uber. The premiums for this abridged vehicle insurance are fully provided by Uber and cover a rider during any trip initiated through the Uber mobile app.
In 2019 NAICOM licensed GOXI and Casava Microinsurance to operate as composite microinsurance companies in Lagos State only. In December 2020, through Circular NAICOM/DPR/CIR/32/2020, NAICOM authorised conventional insurance companies to carry out microinsurance operations once they have met the stipulated requirements.
NAICOM’s two recent recapitalisation initiatives, which have both been stalled by litigation, are discussed extensively elsewhere in this Q&A (see question 6.1 on the minimum capital requirements for the insurance industry). Many companies that were below the requisite capital thresholds had commenced fundraising efforts or were considering consolidation before the current litigation-induced stay of action.
Other new developments include the following:
- the removal of the ban on partnerships with mobile network operators, which will give a boost, for example, to airtime recharge insurance arrangements (eg, health insurance), which were hindered by the lukewarm attitude of the previous NAICOM administration;
- ongoing efforts to increase the insurance industry’s technology leverage. For example, an insurance-technology conference, entitled “Innovation and Partnerships for Sustainable Insurance”, was hosted by the producers of the InsurTech Business Series Podcast in November 2020;
- the hosting of the 47th African Insurance Organisation Conference and General Assembly in May 2021, with the theme “The African Insurer in the Face of Digital Disruption”; and
- the provision of health insurance coverage to Nigerians by fintech start-up Aella, which recently launched Aella Care – a health insurance scheme offered in partnership with health management organisation Hygeia. The company aims to provide health insurance coverage for more than 500,000 Nigerians in 2020 through its Aella application.
Given the low insurance penetration rate, Nigeria’s demographics and the resulting pent-up demand, the Nigerian insurance market has indisputable potential. This should be good news for current players, prospective investors and new market entrants.