As insurance companies in Nigeria struggle to improve in their market penetration, chief executive officer of the National Insurance Commission (NAICOM) Alhaji Mohammed Kari has attributed the staunted growth of insurance industry to what he described as a fragmented financial sector.
Alhaji Kari who is Nigeria’s Commissioner for Insurance made the remark at the just concluded 46th edition of the African Insurers Organisation (AIO) which held in Johannesburg, South Africa.
According to him, unlike in most countries where the financial sector only has one regulator regulating 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 National Insurance Commission (NAICOM) regulates the insurance industry 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.
Whereas pension and Health insurance are classified as the products of Insurance industry in most countries, he said, 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.”
He said, 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, he believes, 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 felt 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.
For him, 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, adding 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 even as companies are still operating with the current capital base which is putting insurance firms at risk.
He said, insurance operators are fond of resisting recapitalisation exercise, whenever the idea is mooted, saying, some insurers prefer to continue to write huge risks in aviation and marine sectors, with small capital, a development, he said, was responsible for why some underwriting firms are struggling to pay claims.
On whether there is the need for recapitalisation exercise at a time the country is transiting to Risk Based Supervision (RBS), he said, there is no insurance industry all over the world that do not have minimum capital requirement, which is usually, the entry point.
“All over the world, there is usually, an entry point which is the minimum capital requirement for an insurer to underwrite risk in a country. Other decisions whether to increase the minimum capital or maintain it, is taken thereafter. So, even under risk based, the minimum capital still exists,” he said
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