Jan. 11, 2010 -
PRLog -- An optimistic interpretation of the latest developments within, and prospects for, Nigeria's insurance sector would emphasise actual and potential for growth. Nigeria's insurance sector remains one of the most opaque of all of those that are profiled by BMI, but enough data is available to confirm reports of growth in premiums of 25% in 2008 and perhaps of 30% in 2009. The National Insurance Commission (NAICOM) hopes that the 'Market Development and Restructuring Initiatives' (MDRI) will boost growth even further. The government envisages that insurance premiums could rise to NGN6,000bn (US$45bn or so ) by 2020. In the medium, term, the government is looking for premiums of NGN1,100bn (US$8.3bn) in 2012. By way of contrast, BMI is looking for total premiums of NGN401bn (US$3.0bn) in that year. A central plank of the MDRI is the enforcement of compliance with the Insurance Act of 2003 and the Pension Reform Act of 2004, which identify sixteen lines of insurance that are compulsory (such as Compulsory Third Party Motor Liability - CTMPL and building insurance). In practice, Nigeria's farfrom- innovative insurance companies have developed products that cater to only six lines of compulsory insurance. Further, there is massive non-compliance with the law, even among major companies and institutions. Successful insurance industries revolve around trust, which is absent in Nigeria. This is clear from, for example, any discussion of the country's motor insurance sub-segment. Most Nigerian motorists are unlicensed and uninsured. They often carry bogus documents to help them pass through checkpoints manned by police who are looking for uninsured drivers. Bogus documents are also used to pursue spurious claims, which the insurers are reluctant to pay: this discourages properly insured drivers - who regard their motor insurance premiums as a government-mandated tax. The insurers themselves often suffer liquidity problems because of slow or non-payment of premiums by insurance brokers, who are overwhelmingly the most important distribution channel (except in the life segment, where there are other problems). There is a complete lack of information concerning cars and drivers that is needed by the Federal Road Safety Commission (FRSC). This is one reason why premiums may be set too low; another is cut-throat price competition which prevails across the entire non-life sector. Nigerians do not use life insurance to provide for their long-term income needs. Most products do not provide protection against inflation - which has traditionally been a problem in Nigeria - with the result that lapse rates are extremely high. In theory, rules mandating majority Nigerian ownership should keep many of the insurance premiums that are paid by operators within the country's massive energy industry within the country. In practice, Nigeria's 49 small insurance companies do not have the sufficient capacity (or transparency or financial strength) - and risks are often insured outside the country. Unlike in most other large developing countries, multinational insurers have not seen it to be worth their while to lobby to have the rules changed so that they can (re)enter the market. The presence or absence of multinationals could be the key factor that determines whether the government comes close to realising the hugely optimistic vision associated with the MDRI. Without the multinationals, it may even be that BMI's much less bullish but still basically positive forecasts are overoptimistic.
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