THE recent notification by the Nigeria Police Force about its intention to enforce the third-party insurance documents of motor vehicles across the country has rekindled interest in the sector. Interestingly, many motorists were oblivious to the necessity of possessing insurance for their cars.
Commercial transport operators asked for more time to obtain insurance for their buses.
This apathy for insurance coverage on vehicles demonstrates Nigerians’ disdain for insurance.
The general idea is that obtaining an insurance policy amounts to a waste of time.
It is not so, and the insurance culture needs to be deepened to boost Nigeria’s economy.
In the new law, a third-party insurance policy provides the holder with coverage of up to N3m in the case of an accident.
Third-party insurance is the minimum legal measure in Nigeria. It grants compensation for injury, death or damage to property caused by the insured vehicle.
The cost is N15,000, up from N5,000 a few years ago. It provides compensation to the owner of a vehicle for fire or theft and saves them from having to bear direct liability for any of the aforementioned. In other words, third-party insurance protects the holder from legal liability and direct payment for repairs in the case of damage.
The fact that it took an enforcement announcement by the police to make people take vehicle insurance coverage seriously is a huge challenge for practitioners in the sector. There have been allegations that fake insurance policies have been detected by law enforcement agencies.
Over the years, the National Insurance Commission has fundamentally restructured the industry to enable investors to inject funds into it.
Getting insured confers several benefits to policyholders. In many countries, the insurance sector is heavily subscribed by investors and the public.
According to Statista, although Africa has 18 per cent of the global population, the insurance industry represents less than 3.0 per cent of insured catastrophe losses worldwide.
The OECD said, “While premiums written exceeded 10 per cent of GDP in France, the United Kingdom, the United States and some other European and Asian jurisdictions, premiums accounted for a much lower proportion of GDP in many Latin American countries and some European countries.”
Statista estimated insurance premium to GDP in Europe at 6.8 per cent in 2020. An assessment of the Los Angeles wildfires was estimated at $30 billion for insurers.
At 0.5 per cent, insurance penetration is low in Nigeria. An industry study indicated that out of 12 million cars, only 3.4 million are insured. The World Bank estimated that insurance company assets to GDP in Nigeria at 1.04 per cent in 2019. Financial consultants Agusto & Co reported a gross premium income of N520.1 billion in 2022. The Nigerian insurance industry ranked 62nd globally per the Nigerian Stock Exchange.
Nigerians believe insurance companies design creative ways to dodge their obligations when accidents and disasters occur. That impression sticks. It is a challenge the industry must dissipate.
There is an attempt to correct this. Towards the end of 2024, the Nigeria Insurance Industry Reform Bill 2024 was passed by the National Assembly and sent to President Bola Tinubu. The bill repeals and replaces several existing laws governing the sector. It introduces a risk-based regulatory framework and adjusts capital thresholds for insurance businesses.
NAICOM said: “The Commission believes that the Bill is a game changer for Nigeria’s insurance industry and is going to have a high positive impact on the contribution of the insurance sector to the country’s GDP and economy as a whole.”
By consolidating existing insurance laws, the new legislation marks a new era in the ongoing efforts to strengthen Nigeria’s insurance industry.
The bill provides a comprehensive framework for regulating all types of insurance businesses and ensuring a more robust and effective sector.
A highlight of the bill is the enhanced minimum capital requirement for insurers. Currently, the capital requirements are N2 billion for life underwriters, N3 billion for general business, N5 billion for composite firms and N10 billion for reinsurers.
The bill has raised these to N10 billion for life underwriters, N15 billion for general business underwriters, N25 billion for composite firms and N35 billion for reinsurers. The recapitalisation is mainly geared towards protecting policyholders and raising the profile of the insurance sector.
Other key points include risk-based supervision, which allows for the consolidation of the risk-based approach to supervision, enabling regulators to monitor and manage risks within the industry more effectively.
It strengthens consumer protection, thus safeguarding the interests of policyholders and promoting transparency and fairness in insurance practices and an enhanced regulatory framework, providing clarity and consistency in the regulation of insurance businesses, and facilitating a more efficient and effective supervisory process.
It is imperative for the industry to upscale the technological capabilities of insurers to enable them to meet the yearnings of their clients and expand their operating base. As the Nigerian economy becomes bigger and more complex with the expected passage of the tax reform bills later in the year, insurers must raise the stakes to ensure profitability.
The bill will reduce conflicts in terms of the risk assessment and settlement of claims. The reforms will push the sector to global standards and link Nigeria to international best practices whereby insurance is a must.
The use of Artificial Intelligence poses the challenge of verifying claims but structure enforcement and adaptability to technology will make it easier.
It is expected that there will be mergers and acquisitions in the industry to acquire a more robust outlook.
In 2024, the Commissioner for Insurance, Olusegun Omosehin, declared that the sector was being assailed by challenges such as low insurance penetration, lack of public trust, market fragmentation, regulatory reforms, as well as digital transformation and adaptation. According to him, these issues must be addressed to revitalise the industry and position it to risk-manage Nigeria’s one-trillion-dollar economy aspiration. This is correct.
With the lean economic situation, Nigerians should accept insurance as a form of savings and a hedge against inflation.
Given the complexities of foreign exchange and naira devaluation, investing in insurance products will significantly help bridge deficits in infrastructural development and ensure greater value for money in public expenditure.
The fluctuations in the exchange rate pose a challenge for insurers to develop products that will encourage Nigerians to invest in the sector.
