Nigeria’s takaful (Islamic insurance) segment has developed rapidly in recent years. Since the introduction of the Takaful Operations Guidelines – the nation’s first rulebook for sharia-compliant insurance products – by the National Insurance Commission (NAICOM) in 2013, the country has seen an influx of interest in developing takaful products for the Nigerian market. As of the end of 2015 three companies – African Alliance, Cornerstone and Niger Insurance – offered Islamic insurance policies of various sorts, and five others have applied for and currently await approval from NAICOM to establish new takaful entities in Nigeria. In March 2015, meanwhile, NAICOM announced the establishment of the Takaful Advisory Council, a federal institution that will provide support to the individual in-house sharia advisory councils of experts (ACEs) that each Islamic insurance provider is required to operate in-house.
Most recently, in late 2015 NAICOM announced that it planned to release a series of new guidelines for takaful firms operating in Nigeria in the near future, with an eye towards broadening the existing operational framework for the nation’s burgeoning Islamic insurance industry. “In 2013 we issued a guideline on the registration of takaful insurance companies which we feel [now] is not broad enough,” Mohammed Kari, Nigeria’s Commissioner for Insurance, and the head of NAICOM, told local media in November 2015. “Earlier, companies have always applied to sell takaful products through windows. Now we have people applying for specific and specialist companies in this area, which is what we need.”
Formalising An Industry
Indeed, NAICOM’s past efforts with regard to takaful regulations have laid the groundwork for what some observers think could become a major component of Nigeria’s insurance market. In 2015 the insurance industry as a whole brought in gross written premiums (GWPs) of N350bn ($1.1bn), up around 19% from N294bn ($928.2m) the previous year, according to data reported by the Nigerian Insurers Association.
NAICOM has been a key supporter of the takaful industry, playing a major role in raising its profile in recent years. In 2005 the regulator licensed the country’s first takaful products, which were launched that year by African Alliance Insurance, Nigeria’s oldest life insurance provider. Soon thereafter Niger Insurance introduced a sharia-compliant saving and investment product. Finally, Cornerstone Insurance, a major local player, introduced a full-fledged takaful window, which, by 2013, was contributing around 3% of the firm’s total GWPs. That same year NAICOM introduced the takaful rulebook, which effectively set the scene for continued investment in the Islamic segment by making it relatively straightforward for the nation’s existing insurers to launch takaful services.
Many challenges remain for Nigeria’s takaful insurers. Islamic-compliant policies are generally considered to be more expensive to develop and cover than traditional policies, due in large part to the cost of maintaining an internal ACE. As such, takaful products tend to be priced slightly higher than traditional policies, which represents a major hurdle in a country like Nigeria.
Nonetheless, Nigeria’s market fundamentals indicate significant potential for takaful uptake in the coming years. Muslims make up around 48% of Nigeria’s 184m-strong population, which means the nation is home to the largest Islamic community in Africa. Taking into account Nigeria’s expanding middle-class population, not to mention its thriving business sectors, the nation’s insurers – including the takaful segment – expect to see considerable expansion in the coming years. Lastly, assuming that NAICOM moves forward with licensing the five standalone takaful providers that have applied to carry out business in the country, the number of sharia-compliant firms operating in Nigeria is expected to more than double.
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