Fitch Ratings, one of the global rating agencies, identified “low average earnings and widespread poverty” in Nigeria as some factors that weigh on the affordability of insurance 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, which THISDAY obtained on Thursday.
According to the agency, these factors continued to limit the prospects for premiums and even the wealthier middle class consumers tend to avoid purchasing insurance, which also hinders the growth of mandatory basic insurance lines, such as motor vehicle insurance.
"Nigeria's potential consumer base needs to be informed about the benefits of life and non-life insurance coverage to support more robust growth in the sector," added the agency.
However, he predicted that, with a market sustained by the country's stable economy and large population, Nigeria's insurance sector will experience a period of medium and long-term growth and development, albeit interrupted by a slower pace of growth in 2020 due to the effects of the COVID-19 pandemic.
“We expect premiums in the smaller life insurance market to increase by 4.8%, revised downwards in 2020 to reach a level of N179.81 billion amid a weaker economic scenario and higher inflation.
“We see strong growth in life premiums over the medium term, reaching N217.96 billion in 2024. We expect premiums in the larger non-life insurance market to increase by a revised rate of 2.9% in 2020 to reach a level of N248 . 85 billion.
"We expect this trend on the growth path to continue in the medium term, with non-life premiums reaching N321.53 billion by 2024," he said.
According to Fitch, despite Nigeria's large population, only a small proportion buy life insurance whose premium currently represents 41.9% of total insurance spending in the country.
Low income and a lack of understanding of the benefits of life insurance remain the most important obstacles that insurers face, he said.
On the other hand, Fitch anticipated that Nigeria's non-life insurance market was set for strong performance in the medium term.
However, as in most other countries where non-life insurance is at an early stage of development, Nigeria's auto and property lines dominate the general non-life segment, he added.
He said: “Nigeria's insurance market is highly fragmented in the life and non-life segments, with only four companies holding more than 5% market share in the life sector and six in the life sector. The market is highly competitive and we expect this to continue as more foreign players capture more market share.
“The Nigerian insurance sector is structured around four types of participants: 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-threatening products, general insurance and health insurance (not medical plan businesses). Currently, the sector is made up of approximately 57 companies, compared to 140 insurers registered in 1994. ”
The National Insurance Commission (NAICOM) last month extended the deadline granted to insurance companies to increase their minimum paid-in capital until September 2021. The recapitalization deadline had previously been set for December 31, 2020, which has become unfeasible after the economic disruptions caused by COVID-19. Insurers now have until September 30, 2021 to completely recapitalize in a two-stage plan.
The commission explained that the pandemic made it difficult to continue the recapitalization deadline of December 31, 2020, adding that a review of the recapitalization schedule became imperative to mitigate the possible negative consequences of COVID-19 in the year.
The Policy and Regulation Director, Mr. Pius Agboola, expanded and segmented the recapitalization process into two phases.
Insurance companies are asked to reach 50% of their minimum paid-in capital for insurance and fully comply with the remaining 50% of the approved minimum capital by September 30, 2021.