October 12, 2012
The Nigerian insurance market has shrunk substantially in the last decade. There are currently 40 non-life and insurance companies in Nigeria, including composites, but Nigel Stitt, an international insurance consultant at Axco Insurance Information Services, estimates there were roughly three times as many companies several years ago. Following the introduction of radically increased capital requirements in 2007, there have been a number of mergers, acquisitions and withdrawals from the market. “You had a limited sized market with a very large and unregulated number of companies. The supervisory authority had very little capacity and operators were doing what they pleased,” says Stitt. But the market has stabilized in recent years, and Stitt says the regulation has greatly improved. “They’re doing the best they can to create a viable market with longevity,” he says. Corruption, however, is still a major issue and the insurance industry is no exception, says Stitt.
In 2010, the top 10 insurance companies in the non-life market had an overall share of more than 50%. The two largest insurance companies are Leadway Assurance Company, a composite insurer that is 81% Nigerian-owned, and Custodian and Allied Plc, a Nigerian-owned non-life insurer. Foreign ownership is limited to 40%, but Stitt says this limit is not always rigorously applied. For the most part, however, there are relatively few significant foreign-based insurers operating in the country.
The National Insurance Commission Decree, No 1 of 1997 established the insurance regulatory body, the National Insurance Commission (NAICOM). NAICOM recently announced that it will now enforce compulsory insurance requirements, including third-party motor insurance, builders’ liability and property owners’ liability. Though this is expected to positively affect premium growth, Stitt says this could be offset by the fact that, in 2010, workers’ compensation became a state-sponsored program.
The other significant regulation that will affect growth is the Nigeria Oil and Gas Industry Content Development Act, No. 2, which was passed in 2010. The act states that non-life insurance in respect of the local hydrocarbons industry must be placed 70% with local carriers and marine insurance must be placed 40% in the local market. But Stitt says that in reality, the local market cannot retain the bulk of the risk. “The international energy risks market, obviously, is substantially involved via reinsurance cessions,” says Stitt. Though non-admitted insurance is not permitted, as insurers must be registered under the local law, permission can be sought from NAICOM to place the risk internationally.
According to market estimates, roughly 70% of non-life business is placed through the broker channel. In 2012, there were 458 registered insurance broker firms in the country. But according to Stitt, the Nigerian broker market is “very, very variable.” “You have some good quality brokers some of whom are correspondent brokers for your international main players: Aon, Marsh, Willis, etcetera,” he says. “And you go all the way down to brokers of a pretty poor quality.” In March of 2012, for example, NAICOM revoked the registration of 32 insurance brokers that had failed to meet their licensing compliance requirements, says Stitt.
In November 2010, banking regulations were passed that required banks to divest all non-banking business, including insurance and insurance broking. Though compliance was due by April 2012, Stitt is unsure how far the process has been moved along.
Insurance Snapshot – Nigeria
Copyright 2012 Rogers Publishing Ltd. This article first appeared in the July/August 2012 edition of Canadian Insurance Top Broker magazine.
This story was originally published by Canadian Insurance Top Broker.