Low insurance penetration rates in Nigeria suggest growth for local players

The insurance sector has seen rapid grown in recent years. In 2015 Nigerian underwriters reported total gross written premiums (GWPs) of nearly N350bn ($1.1bn at the time of printing) according to data released by the Nigerian Insurers Association, an industry group. This figure was up around 19% on the previous year. In light of the pace of expansion, and in addition to Nigeria’s enormous population and low rate of insurance penetration, it is perhaps not surprising that the market has attracted a raft of major foreign insurance players in recent years. This includes global giants such as French firm AXA and the UK-based Prudential Life Company, each of which have made major acquisitions, with an eye towards the future. “Nigeria’s new middle class has not entirely embraced insurance yet,” Olatoye Odunsi, managing director of Custodian and Allied Insurance, told OBG. “But so long as the regulator continues to do its job and the economy continues to pick up, there is, of course, huge potential here.”


Soon after independence, the government set out to survey the insurance sector. The ensuing report, which was carried out by the JC Obande Commission in 1961, laid the groundwork for the establishment of the Department of Insurance in the Federal Ministry of Trade.

The report also led to the introduction of Nigeria’s first insurance-related piece of legislation, the Insurance Companies Act No. 58 of 1961, which came into effect in May 1967. Over the following decades the Department of Insurance, which was eventually relocated under the Federal Ministry of Finance (FMF), issued a number of updates and revisions to the 1961 act. Insurance Decree No. 59 of 1976, for instance, was widely regarded as the nation’s first comprehensive set of insurance regulations. Decree 40 of 1988, meanwhile, made provisions for the burgeoning life insurance segment, while Decree 20 of 1989 mandated that all insurance companies operating in Nigeria were required to contribute 1% of their earnings to the newly formed Insurance Special Supervisory Fund, which was drawn on by the regulator to cover operating costs.

In 1992 the insurance regulator was formally spun off into a semi-independent entity, known as the National Insurance Supervisory Board, which was given far-reaching regulatory powers. Finally, under Decree No 1 of 1997 the organisation’s name was changed to the National Insurance Commission ( NAICOM), and a range of norms were put in place across the industry, in line with international standards. The ruling continues to serve as the basis of NAICOM’s authority today, though the regulator has introduced a wide range of new decrees and other regulations in the intervening two decades.


Insurers operating in Nigeria face a range of challenges. The dramatic fall in the price of Brent crude – the international oil benchmark – that began in June 2014 has had a far-reaching impact on Nigeria’s economy, which relies to a large degree on energy receipts. Additional issues that have put pressure on the nation’s insurance sector include depreciation of the naira, rising claim payments in recent years and, more generally, falling consumption levels among a large swathe of the population.

Perhaps most fundamentally, the industry has yet to convince the bulk of the population that insurance is a viable product, worthy of spending money on. A widespread lack of awareness is a key component of this issue – many Nigerians do not know how insurance works, how to obtain it, or why. Furthermore, many of those that are aware of the industry are sceptical of it. “One major problem we have here is a lack of trust,” Adewale Foster-Aileru, the head of strategy at Cornerstone Insurance, a major domestic composite player, told OBG. “Building trust with clients is a necessary part of the business right now. We consider it to be the only way to eventually gain access to this retail huge market.” Other hurdles to growth include a lack of distribution channels, a relatively small range of products at most firms, increased regulatory pressures and a lack of up-todate, reliable data about the industry, among others.

As a result, NAICOM has tightened up the regulatory framework and worked to improve oversight, transparency and corporate governance across the industry in recent years. While most local players agree that these changes are necessary to ensure the sector’s future stability and, in turn, profitability, complying with the new rules will require adjustments on behalf of the operators.

Despite these pressing issues, however, in a report in late 2015 Fitch foresaw continued expansion among Nigerian insurers. Noting that most of the nation’s largest underwriters have maintained strong premium and balance sheet growth in recent years, despite the challenges, the ratings agency lists the low insurance penetration rate, the country’s robust demographic situation and rising investor interest in the sector as key growth drivers.


Total GWPs are currently worth less than 1% of GDP, and premiums per capita were at around N1923 ($6.07) in 2015, the latter of which was one of the lowest rates in the world. The low insurance penetration rate in Nigeria is widely regarded as an indicator of the nation’s growth potential. “The insurance industry is hamstrung by a lack of awareness. Many companies and individuals do not understand the nuances of policies, and expect premiums to cover everything,” Wole Oshin, group managing director at Custodian and Allied Insurance, told OBG. “Awareness is slowly improving, however, as more firms are beginning to see its utility.”

In recent years general coverage policies have accounted for the majority of GWPs across the industry as a whole. In 2014, for instance, general policies generated premiums of N184.9bn ($583.7m), as compared to life premiums of N108.6bn ($342.9m) in the same period, according to NAICOM.

Despite its relatively low penetration rate, Nigeria is regularly cited as home to the second-largest insurance sector in Africa. According to RisCura, a South Africa-based global investment advisory and financial analytics firm, total insurance sector assets under management in Africa as a whole were at around $273bn at the end of 2015. The great majority of this total – around 85% according to RisCura’s data – was held by South Africa’s insurance industry, which is considerably more developed than any other country on the continent. Nigeria, by comparison, was home to around 0.4% of this total. Looking further afield, Africa’s insurance industry accounts for only a small percentage of the global insurance market, which has made it ripe for growth.

In 2012 – the most recent year for which data was available at time of publication – GWPs brought in by African insurers were worth just 1.55% of global GWPs. This figure is well below Africa’s portion of global GDP, for instance, which suggests that the insurance industry is underdeveloped across the continent. By comparison, the G7 nations, which are home to just 10% of the world’s population, generated around 65% of total global GWPs in 2012.

While Nigeria’s overall insurance penetration rate is at less than 1%, uptake is not the same across all regions of the country. Indeed, like most other financial services sectors, the insurance industry is heavily concentrated in the nation’s crowded south-west, centred in Lagos. States in the north, meanwhile, are relatively untapped by insurers, largely due to challenges associated with distributing insurance products in rural areas. Nigerian insurers are optimistic that the increasing penetration of mobile telecoms could eventually allow them to access these remote markets more easily (see analysis).

Regulatory Framework 

In recent years NAICOM has introduced a number of initiatives aimed at improving operations and stability across the industry. In 2015-16 the regulator has rolled out a series of new rules aimed at instituting a risk-based supervision regime in the insurance sector. Traditionally the industry has been regulated on a compliance basis, wherein underwriters were required to show that they had met all of NAICOM’s requirements. Under the new framework, which is expected to be put in place in its entirety before the end of 2016, the regulator will require insurers to report their individual corporate risk profile, which will in turn delineate the extent of regulatory oversight accorded. In spring 2016 NAICOM issued a new set of guidelines on corporate governance, in a preparatory effort for the implementation of risk-based supervision. One component of these new guidelines is a rule which states that non-executive directors can serve a maximum of nine years each. It is hoped that this will ensure gradual turnover of directors to introduce new talent, propagate institutional knowledge and improve consumer confidence in the industry.

While full details of the new plan have yet to be released, NAICOM has hinted that it may require increased capitalisation. Minimum capital requirements in the insurance sector, which have not been updated since 2007, currently stand at N3bn ($9.5m) for general insurers, N2bn ($6.3m) for life companies, N5bn ($15.8m) for composite firms, and N10bn ($31.6m) for reinsurers.

Increases in regulatory minimums for insurers have lagged those of the banking sector over the past few decades, which have jumped up around eight times faster than in the insurance industry since the early 1980s, according to the FMF. “The insurance sector needs to raise minimum capital requirements in a manner that is comparative to what happened to the banking sector in the last two to three decades,” Kemi Adeosun, Nigeria’s minister of finance, told local media in July 2016. “Increased capital will provide funding for publicity and product development. It will raise the clout of insurance companies in policy formulation and will enhance [the sector’s] capacity to hire the best people and deploy the technology and marketing, product awareness and investment needed to the support the industry.”


As of mid-2016, NAICOM’s company registry showed that 60 underwriters were licensed to do business in Nigeria, including 14 composite firms, which offer both general and life products; 31 general policy providers; and 15 life insurers. As a result, raising minimal capital requirements also has the potential to jump start a period of consolidation in Nigeria’s insurance industry. As of the 2014 the nation’s largest insurers had capital of N14bn-25bn ($44.2m-78.9m) according to data from the FMF. However, the bulk of the industry is made up of much smaller firms, leading to fragmentation at the lower end of the sector. A round of mergers and acquisitions has the potential to result in a leaner sector with fewer players, but stronger players that are able to provide more robust coverage options. As of 2014 the largest composite insurers are Leadway Assurance with GWPs worth $194.5m, AIICO Insurance ($102.5m) and AXA Mansard Insurance ($65.5m).

Ownership Shift 

Traditionally many of the largest insurers in Nigeria have been owned by local banks or related domestic financial conglomerates. However, in 2010 the Central Bank of Nigeria ordered the nation’s lenders to divest themselves of all non-banking subsidiaries, so as to focus on their core business. As a result of this ruling, the insurance segment has undergone a major shift in recent years, with many firms being sold to international investors eager to secure a piece of Nigeria’s nascent insurance sector. In 2011, for instance, foreign corporates based in Côte d’Ivoire and Mauritius acquired Nigeria’s ADIC Insurance and Guaranty Trust Assurance, respectively, from local lenders, and subsequent years saw controlling shares in the Nigerian underwriters Oceanic Life Insurance Limited and Oasis Insuranced secured by companies Old Mutual and FBN Life, each of which are based in South Africa.

In early 2016 the UK-based financial services firm Prudential Financial announced that it planned to commit $350m to investments in life insurance in Africa. The financing, which will be managed by the UK and Australia-based private equity firm LeapFrog Investments, is expected to go towards acquisitions in Nigeria, but also in Ghana, Kenya and other African countries. “Insurance penetration in Nigeria remains low and we see real opportunities for growth,” Doug Lacey, a partner at LeapFrog Investments, told local Nigerian media in January 2016.

General Coverage 

The oil and gas sector accounts for the bulk of general insurance premiums in Nigeria. Data about these policies is unavailable, though some estimates put hydrocarbons-related GWPs at 60% of the total industry. However, insurance policies in the oil and gas sector are largely limited to smaller projects and schemes. Given that the industry does not have the capacity to cover large-scale risks – including many associated with major oil and gas extraction projects, transport and sale – there is enormous potential in this area in the future, though the sector has a considerable amount of development in front of it before it can move in to cover most hydrocarbons projects. NAICOM has mandated compulsory coverage in five areas, namely third-party motor liability insurance, liability coverage for building occupiers, group life insurance, coverage for construction sites and indemnity insurance for doctors and other health care professionals.

The motor segment was the largest source of premiums after the oil and gas segment in 2014, the latest year for which data was available, bringing in GWPs of N42.9bn ($135.4m), which was equal to 14.6% of the total N293bn ($925m) recorded during the year as a whole, according to NAICOM. At the end of 2014 some N14.6bn ($46.1m) was paid out in motor claims. However, enforcing compulsory coverage remains a major challenge for the regulator.

According to the Nigerian daily, Business Day, most drivers in Nigeria do not have basic third-party liability (TPL) coverage, despite NAICOM’s mandatory requirement. Local media also state that a large percentage of drivers have bought and paid for counterfeit TPL policies, despite the regulator’s best efforts to shut down bogus operators. With these issues in mind, in June 2016 NAICOM announced that it planned to devolve enforcement of compulsory coverage rules to the states, in what was widely seen to be an effort to boost penetration of mandatory lines in rural areas, in particular.

Life & Health 

The life segment, meanwhile, has expanded rapidly in recent years, on the back of Nigeria’s strong economic performance during the period 2010-14. Indeed, over the course of this four-year timespan, life GWPs more than doubled, from N42.1bn ($132.9m) to N86.3bn ($272.4m). This latter figure was equal to just over 28% of total premiums for the year, as compared to general policies’ 58.5% share. The remaining 13.4% of total premiums were brought in by the health and personal accident segment. The primary challenge of the life segment, in particular, has to do with poor distribution systems.


Traditionally all insurance products in Nigeria were sold by registered agents travelling around the country selling policies, often door to door. There are currently 15,000 registered insurance agents and 350 registered brokers, according to the Nigerian Insurers Association, an industry trade association. Brokers are responsible for 90% of all premium incomes, however, individual agents are responsible for selling the vast majority of individual life insurance policies.

Bancassurance has gained traction in recent years, with a handful of underwriters signing distribution deals with domestic lenders. However, in mid-August 2016 NAICOM suspended all bancassurance partnerships, citing a dispute with the Central Bank of Nigeria over regulations related to the structuring and operation of bancassurance. It is unknown when this suspension will be lifted. “NAICOM discovered that an insurance company had signed a 12-year partnership with a bank, when it is supposed to be renewable every two years,” Mohammed Kari, the commissioner for insurance, told local media at the time of the suspension. “This is wrong. We also noted that an insurance company had paid commission in advance to one of the banks, and this is abnormal.”

The health insurance segment, in particular, has embraced new technology, largely as a result of the government’s National Mobile Health Insurance Programme (NMHIP), which is a key component of the state’s effort to institute universal health insurance in Nigeria. Under the NMHIP initiative, affordable health insurance is sold via mobile handset. The programme was piloted by MTN, the nation’s largest mobile operator by subscribers, in 2014, and is currently being rolled out at a larger scale (see analysis).


Another key area that is widely expected to post rapid growth in the coming years is Islamic insurance, or takaful. As of the end of 2015 just three companies sold takaful products – all of them through so-called Islamic windows, i.e. in addition to their traditional policies. However, according to the regulator five wholly sharia-compliant insurers have applied for licences to carry out business in Nigeria. The influx of activity in the Islamic segment follows on from NAICOM’s introduction of operating guidelines for takaful players in 2013 (see analysis).


Nigeria’s insurers have faced a series of challenges. Far-reaching economic volatility, political instability and ongoing structural issues continue to hinder many local players. However, given the low penetration rate and the enormous local market, many underwriters and market watchers are broadly optimistic about the future. Furthermore, the current period of economic tightening could lead to market consolidation, with smaller, undercapitalised firms selling off their operations to larger players. With these developments in mind, some local underwriters are looking forward to significant growth.


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The Report: Nigeria 2016

Insurance chapter from The Report: Nigeria 2016

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