Coronation Research issues 2019 Outlook for the Insurance Sector
Nigeria’s insurance industry has not shared in the growth experienced by other Nigerian financial services, notably banks, pension funds, and mutual funds.
In fact, it has hardly grown in real terms over 10 years.
This is the position of the report from one of the leading research houses in Nigeria – Coronation Research, a part of Coronation Merchant Bank.
Without scale, the industry suffers from poor returns on equity. Yet its smallness is also its opportunity. If it were to grow to the level reached by countries with similar GDP per capita,
it might grow by a factor of 10 times in real terms in eight-to-10 years. The technological infrastructure and data necessary for the expansion are largely available.
Recently, the National Insurance Commission (NAICOM) announced the introduction of new capital requirements, due in June 2020, for the sector. We believe these will reduce the current 59 companies to around 25.
There are close parallels with the banking reform of 2004. The banking industry grew rapidly after that, so the question is how the insurance industry can grow after 2020. In the meantime, there will be capital raising and mergers and acquisitions.
The Head of Coronation Research, Guy Czartoryski, said to position the sector for radical growth, one must consider the lessons learned in Asian markets, and also in West Africa, which shows how insurance can be rolled out to tens of millions of customers.
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 the re-capitalized insurance industry to make enormous gains from 2020 onwards,
As contained in the report, Nigeria’s insurance penetration, at 0.31 percent, is less than one-tenth of that of India
(with similar GDP per capita), which suggests significant untapped potential.
The business opportunity exists because of Nigeria’s very low bases in insurance penetration and insurance density.