Nigeria insurance's gold lined future: the Nigerian insurance industry's recapitalisation consolidation exercise has now been successfully concluded and a bright new dawn beckons. but a great deal of internal cleaning up is required if the industry is to forge ahead. Anver Versi attended the industry's first major summit after consolidation in Abuja last month.

After one false start followed by bitter internal acrimony, the dust seems to have settled and Nigeria's insurance industry is poised to try and emulate the remarkable success of the country's banking sector. While the banking consolidation process which whittled down 81 average banks to 25 powerful organisations went more or less without a hitch, a similar exercise for Nigeria's torpid insurance industry ran into the buffers.

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The industry's then chief regulator, Insurance Commissioner Emmanuel Chukwulozie was forced to stand down last year after fierce rows broke out when he released his list of recapitalized companies. Although the number of insurance companies had been reduced from 114 to 71, most were convinced the reforms had not been reflected accurately in the list.

Chukwulozie was replaced by Fola Daniels who drove through the reforms amid a cacophony of legal disputes and strong political and judicial interventions. The internal wrangles did not help the industry's already bleak public image and investors were slow to respond to its urgent need for large capital injections.

The recapitalization requirements set by the Commissioner were steep, especially for a sector that had been somnambulant at best. The minimum capital base for life insurance companies was raised 1,233% from N150m to N2.5bn; for general insurance the minimum capital rose from N200m to N3bn, an increase of 1,400% and for re insurance, the increase was 2,750% raising the threshold from N350m to N10bn. As in the banking sector, the recapitalisation big bang had the effect of exploding the sector before it regrouped, through mergers, acquisitions and other measures into 49 insurance companies.

Last month (April) the Nigerian Insurers Association (NIA) in conjunction with Business InAfrica Events brought all the major industry players together for a two-day summit in Abuja to discuss the future.

This was billed as a no-holds-barred soul searching for the insurance sector--and it was. NIA chairman, Ibidolapo Balogun set the tone when he reminded insurers that the recapitalization was only the first step in what will prove a long and perhaps difficult journey.

He said the industry had to change its public image, which was largely negative, by changing its own attitude towards customers. He pointed out that the industry had been lagging far behind other sectors and it needed to not only modernize technologically but also to adopt a modern, progressive mindset.

On the other, Balogun said, the potential for growth in the industry was almost limitless but players had to gain the confidence of the public by ensuring that claims were paid promptly and that the right products were offered to the right products were offered to the right segments of the market. A combination of tough regulation and self-policing to weed out unethical companies was essential if the industry is to realise its enormous potential.

Nigeria's Minister of Finance, Dr Shamsudeen Usman predicted that if the industry got its act together and adopted a professional attitude, it could outperform banks in terms of financial muscle. He pointed out that in developed countries, insurance was very big business and that the concept of purchasing insurance was so much a part of public culture that households made allowances for premium payments when they drew up their budgets.

"In Nigeria, even when there is no doubt about paying a claim, some companies will try to wriggle out of their obligations or delay the payments for no reason whatsoever. This is not clever. It is shooting yourself in the foot. It undermines confidence in the industry and everybody involved loses out.

"It should be clear to all now that those companies that think all they have to do is collect premiums have no place in the new dispensation," he stated.

He also warned companies that cut their premium rates unrealistically in order to gain a competitive edge but were then unable to meet claims payments that the regulators would keep a keen eye on their activities.

"The times are still turbulent," he added "we need to manage the situation skillfully."

Giving the keynote address, Fola Daniel, Commissioner for Insurance, National Insurance Commission (Naicom) told the delegates that countries with high insurance awareness and penetration tend also to be economic successes. He added that South Africa alone accounted for about 70% of the total African insurance market.

The recapitalisation exercise, he said, had been successful at several levels. It had reassured investors and this was reflected in the demand for insurance based shares on the stock exchange.

However, there was still a very long way to go he said. At present less than 10% of the insurable population was actually insured and over 70% of vehicles were not properly insured.

The industry had failed to capitalise on compulsory insurance, for example the mandatory group insurance scheme for firms employing more than five people, structures listed as public buildings and a whole host of other insurable items that were not being serviced. In this area the insurance gap was almost 88%.

He said that the industry's old excuses for its lackluster performance, such as illiteracy leading to lack of awareness and religious beliefs interfering with sales, did not hold water. "People are becoming more literate and many know the advantages of insurance but you have to sell the concept and then deliver on your promise. And religion is no barrier--the success of specialised schemes such as takaful insurance aimed at the Muslim population was proof of that.

What was absolutely essential, if the industry hoped to take off rapidly, was a change in culture and practice. "A major shift in corporate governance is vital. Management must be based on knowledge and integrity. Firms must remember that premium payments are monies held in trust, not operational profits!"

He also pointed out that government regulations had made ample provision for indigenous content in underwriting big-ticket policies for the oil and gas sector but that few local companies had so far displayed the capacity to undertake this business.

When I later interviewed him at his offices in Abuja, I asked him if 49 companies were still too many as several delegates had stated duringthe conference. "We cannot devise policy on numbers--so many companies and no more," he replied. "We laid out criteria for recapitalisation--and as you know, there were howls of protest because we raised the capital base by at least over 1,000%. Nevertheless, those were the rules and the companies that met the requirements were issued with licences. That is the fair and proper way to go."

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He then told me that there would be further market shake-ups. The better organised, managed and capitalized companies would expand--"you are likely to see firms capitalized at between $5-10bn over a fairly short space of time. This will bring in its own dynamics in terms of corporate governance, competition, efficiency and so forth. Give it 18 months and you will see the insurance sector going head to head with the banks."

Returning to the conference, Yemi Soladoye, managing director of RiskGuard Africa placed the Nigeria insurance industry in the global picture. He told the meeting that the global income from insurance premiums amounted to $3,244bn per year. Of this, 59.33% came from life insurance premiums. Premium income in Nigeria amounted to $0.72bn of which only 15% came from life insurance.

Nigeria's position globally was 64th although it was number four in Africa. The level of insurance gap, according to his calculations, was an astonishing 94%. In contrast, 86% of India's billion plus population had life insurance.

Soladoye then projected the growth of the industry to 2020. "We are at the early growth stage now," he said. He expected that by 2020, "the sustained growth stage", the number of players in the industry will have contracted to 40 and premium income to be a round $60bn.

He added that while there was an obvious and massive gap in life insurance, most other areas, including oil and gas, marine and aviation, property and casualty and motor vehicles were very poorly covered by the indigenous companies. Oil and gas, marine and aviation were still very much in the hands of foreign players.

Adeniyi Elumaro MD of Integrated Capital Services demonstrated the importance of the insurance sector to GDP when he contrasted the South African insurance industry's contribution to GDP at 12% with that of Nigeria at only 0.7%.

Prince Lafor Olateru-Olagebegi, MD of Oceanic Insurance Group said that while insurance companies often formed the financial backbone in developed countries, it was the exact opposite in Nigeria. "Nigeria, with a population of over 140m people, has an insurance density of about 5-10% as against 40-50% in some developing countries and 90-98% in most developed countries."

However, he said, all indices point to a promising new dawn for the industry. "The performance of insurance stocks in the capital market in recent times shows that a new chapter has just begun for the sector; the penny stocks of yesterday are now creating wealth and empowering more Nigerians.

He referred to life insurance as "a goldmine that has remained unexplored by the insurance sector. "According to the 2006 Sigma Report," he said, "the life sector in South Africa raked in $33.1bn while Nigeria earned a paltry $112m within the same period."

In terms of premium income in Africa, South Africa is outstanding at $40.731bn, followed by Morocco with $1.675bn; Egypt with $843m; Nigeria with $716m; Angola with $687m; Algeria with $625m, Tunisia with $604m and Kenya with $592m. (All figures for 2006, Sigma Report).

As Prince Olateru-Olagbegi said, Nigeria's insurance sector is sitting on a gold mine that has hardly been touched. This has attracted the interest of major banks. For example, UBA has formed a joint venture with one of South Africa's largest insurers, Metropolitan Life.

In addition, the expansion of already big players such as like Leadway, Custodian & Allied Insurance, Mutual Benefit Equity Assurance, WAPIC and IGI is certain to transform the industry over the next few months.

We can expect a roll out of new products tailored to the Nigerian market, advertising campaigns aimed at both changing the negative perception the industry still has among the public and for individual companies to gain competitive advantage, and a tightening of oversight functions from Naicom to 'clean' out unethical firms from the sector.

It is certain that with the vast amounts likely to be realised from this reorganized sector, foreign companies will seek to form alliances with local firms. Given the large amounts of excess liquidity sloshing about in the Arab world, expect renewed interest in Nigeria from this quarter.

It is also equally certain that sooner rather than later, the better insurance entities will be in a position to underwrite large infrastructure business, including oil and gas, marine and aviation. In addition, Nigerian companies over the next two years are certain to expand operations not only in West Africa but following the lead of banks such as Ecobank, UBA and GTBank, and Zenith will establish footprints all over the continent.

The future for the industry is certainly gold lined--it is now up to the players not to trip over their own feet and fall flat on their faces.

(A full interview with Insurance Commissioner Fola Daniel and the views of the industry's biggest players will be published in a Special Report in the July 2008 African Banker magazine.)