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Asian markets lessons can help Nigeria in Insurance sector reform— Czartoryski

The Head of Coronation Research, a strategic division of Coronation Merchant Bank, Guy Czartoryski has averred that whereas all eyes are on 2020 over recapitalization, mergers and acquisitions, time has come for players to consider the lessons learned in Asian markets.

He said experiences in the Asian markets have rolled out to tens of millions of customers.

According to him, “Cooperation between regulators is critical, as are distribution partnerships with banks and telecom companies. Fresh capital is necessary for development, but a fresh strategic approach is required to reach the industry’s potential.

“Nigeria’s insurance sector presents perhaps the most remarkable investment case of any industry in Nigeria. At one level, the business case is very simple.

“Insurance penetration, at 0.31 per cent is extremely low, even compared with countries with similar GDP per capita, for example India with insurance penetration at 3.69 cent.

Czartoryski added that “Experience in other countries shows that, in the right conditions, insurance can be rolled out to India’s level in eight to 10 years. So Nigeria could go from 0.31 per cent penetration to 3.69 cent penetration in 10 years.

In his views, “Nigeria has achieved great things in financial services. Pension Fund penetration is an example, with the total assets under management (AUM) of its pension funds growing, in real terms, at 9.8 per cent between 2008-2018 and taking the proportion of the population covered up to 4.3 per cent and rising.”

However, he said the Nigerian insurance industry has lagged its other financial services. Conditions have not been helpful for growth. Experience from other markets, particularly in Asia, suggest three remedies.

“First, government and regulators – not only insurance regulators but bank and telecom regulators, too – need to cooperate: there are gains for all.

“Second, the roll-out of micro-insurance with the development aim of financial inclusion, is key to familiarizing and educating the market. Third, technology plays a key role in partnerships and distribution

“NAICOM’s current reform of the insurance industry shares essential features with the 2004 reform of the banking industry under Professor Charles Soludo, then Governor of the Central Bank of Nigeria (CBN).

He said “Just as NAICOM appears to seek consolidation and an overall reduction in the number of players through stringent capital requirements, so too did the CBN in 2004.

He recalled that the result of 2004’s banking reform was to reduce the number of banks from 89 to 25. As already stated in the report from Coronation Research, 2020 could see the number of insurance companies fall from 59 to around 25.

Czartoryski argued that “If some insurance companies are actually eliminated rather than consolidated by this process, then the survivors will enjoy market share gains.

The banking sector enjoyed a boom after 2004, so the question is how the insurance industry will grow after 2020. It is, however, important to note that economic conditions between 2005-08 were different from today, with rising oil prices bringing in a very high level of foreign direct investment from which banks benefited, sometimes directly.”

“With banks after 2004, there exists the opportunity for a re-capitalised insurance industry to make enormous gains from 2020 onwards, not only in terms of expanded underwriting capacity but also (as was the case with banks after 2004) by attracting millions of new accounts.

As contained in the report, Nigeria’s insurance penetration, at 0.31 per cent, is less than one tenth of that of India (with similar GDP per capita), which suggests significant un-tapped potential.

He averred that “The business opportunity exists because of Nigeria’s very low bases in insurance penetration and insurance density.”