Nigeria's insurance sector to expand as new regulations come into effect

With a saturation rate of just 0.5% and a population of almost 200m, Nigeria’s insurance sector is attractive chiefly for its potential. The number of uninsured prospective customers is among the world’s largest within a single market. However, realising that potential has been difficult, with the sector fragmented and in need of consolidation. “Consolidation is often said to be on the horizon, but this is unlikely in an underpenetrated industry where most companies are not running deficits. Therefore, a large wave of consolidations in Nigeria is unlikely to occur in the short or medium term, because Nigerians have a strong preference for businesses ownership,” Eguarekhide Longe, managing director and CEO of AIICO Pensions, told OBG.

Although the state’s regulator has been working to update and implement a new development plan, insurance companies are increasingly looking to non-traditional products to further boost exposure and overall access to policy coverage in Nigeria. These methods include micro-insurance for the retail market, index insurance for agriculture and new schemes for public health care. According to Ebelechukwu Nwachukwu, the CEO of NSIA Insurance, increases in insurance coverage have been stifled by the tendency of insurers and businesses to aim for quick profits, rather than make solid plans to deepen penetration.


Nigeria has used policy interventions in the past to try and increase the rate of insured customers, but execution of these policies has proven challenging, as long awaited increases to minimum capital requirements have yet to be completed. Although automotive coverage is mandatory, in May 2018 the Nigerian Insurers Association stated that just 5m of the 16m vehicles on the road are insured and fake insurance certificates are common. This underscores the market’s untapped potential.

The struggle to attract new policyholders is a frequent problem in countries where economic development is ongoing, and is often a result of price-conscious consumers perceiving policies as unaffordable. However, Nigerians have demonstrated an appreciation for risk management, and informal market solutions like collective savings schemes are a common option for those who cannot afford to participate in the formal financial sector. Alternatives like this suggest that many Nigerians understand risk management and could be open to using insurance coverage in the future. Insurers might find success using substitutes for conventional underwriting practices. One possible substitute is micro-insurance, where premiums and coverage are greatly reduced and affordable for a larger number of people.

Sector Organisation

The Insurance Act of 2003 encompasses the primary laws covering insurance activity in the country, and the National Insurance Commission (NAICOM) is the regulatory agency for those laws. In 2009 NAICOM launched its ongoing Market Development and Restructuring Initiative (MDRI), which endeavoured to ensure compliance with mandatory insurance requirements. The initiative was not entirely successful, and in 2017 the agency announced it would soon relaunch the programme with updates reflecting increases in delivery channels and non-traditional insurance options.

Local content policies for oil and gas risks have also not been fully implemented. These policies require that insurance of large or complex risk may only be sought through foreign insurers if local firms are unwilling to undertake the risk or lack capacity to provide the service. This has been a challenge, as many companies lack either the capital or sophistication to underwrite complex energy sector activities.

As of late 2017, the most recent numbers showed that NAICOM had licensed a total of 14 life insurers, 28 non-life insurers and 13 composite companies. Specialists include two reinsurers, 460 brokers, 25 loss adjusters and two takaful (Islamic insurance) companies. Takaful companies offer a sharia-compliant alternative to conventional insurance. An estimated 75% of policies are purchased through brokerages. Bancassurance programmes were suspended in 2016 due to concerns raised by the Central Bank of Nigeria. That suspension was lifted in March 2017 after new regulations were established to ensure strict separation between banking and insurance divisions in company structures. These regulations include a provision forbidding banks from offering banking products with insurance features, and one disallowing the payments of insurance premiums as part of any banking product. Banks are permitted to refer to insurers through an established bancassurance agreement, with marketing or underwriting done solely by the insurer. NAICOM licensing fees for a bancassurance partnership currently range from N500,000 ($1620) to N2.5m ($8080).

Foreign Investment

Shortly after the new rules were implemented, UK-based Prudential announced the acquisition of the insurance arm of Zenith Bank. The new conglomerate company, Prudential Zenith Life Insurance, announced bancassurance relationships with Zenith in both Nigeria and Ghana, wherein company sales representatives would be placed in Zenith Bank branches to sell policies. The sector is accustomed to foreign investment, and in recent years has seen companies like France’s AXA Group and South Africa’s Old Mutual purchase of Mansard Insurance and Oceanic Life, respectively.

As per NAICOM’s most recently published figures, gross premium income was N326bn ($1.1bn) in 2016. On a nominal basis this figure increased from 2015, however, it declines after adjustments are made for inflation. If partial-year results are an indication, full-year figures for 2017 may not indicate a return to growth in gross premium, as the third-quarter growth rate was lower than that of the same period in 2016 and 2015. The Nigerian Bureau of Statistics reports that the financial sector’s overall contribution to GDP, including banking and other financial services, reached 2.69% on the quarter, below the 2.90% recorded in the third quarter of 2016 as well as the 3.32% measured in the second quarter of 2017. Nevertheless, slow recent performance has not changed either the long-term outlook or the structural features that previously attracted investors to the sector. A report from Fitch Ratings forecast that gross premiums would increase in 2018, due to the potential for economic growth, the young population, expanding middle class, investor interest and the low penetration rate.


General insurers recorded N201.5bn ($651.5m) in gross premiums in 2016, resulting in an aggregate underwriting profit of N55.7bn ($180.1m) after expenses. Investment income of N30.3bn ($97.9m) was recorded, as was a final after-tax profit of N31.5bn ($98.6m). There are five companies with market shares of at least 5%, led by Leadway Assurance, with 10.69% of the whole. Continental Reinsurance, Custodian and Allied Insurance, AXA Mansard Insurance and NEM Insurance complete the top five, altogether accounting for 39.2% of the market share.

Compliance challenges for underwriters include an underground market that produces fake auto insurance certificates, which can be considered a cheap solution to the purchase of genuine coverage, as well as non-payment of premiums on existing purchased policies. NAICOM’s No Premium No Cover policy states that holders who are delinquent on payment should not expect any claims to be fulfilled. An estimated 60% to 80% of motorists have purchased coverage from unlicensed companies. The certificates they are issued will not provide chance of claim payment, but can possibly be mistaken as proof of coverage if requested by traffic police.

While insurers have long depended on large-scale customers such as the government and mandatory coverages, there is increasing recognition that accessing Nigeria’s long-term potential will require more aggressive courting of retail consumers, like providing exemplary customer service when handling claims. This also includes companies improving digital options, allowing claims data to be submitted online and handled faster overall. In an interview with local media, Jide Orimolade, managing director of Law Union and Rock Insurance, said, “The only way insurance companies can advertise themselves in the market is in the ability to settle claims – not just settling the claims, but settling the claims on time.”


Life insurers wrote a combined N124.6bn ($402.8m) in gross premium in 2016 and reported underwriting profits on the order of N7.8bn ($25.2m). Investment income totalled N20.1bn ($64.9m) and after-tax profits reached N4.82bn ($15.6m).

This segment of the insurance market is more concentrated, and the top five companies by market share control roughly 72% of the market. Continental RE and Nigeria RE are Nigeria’s two domestic reinsurance companies. Lagos is also the headquarters of Africa RE, which is owned by a combination of African states, the African Development Bank and African insurers.

New Alternatives

Insurers are struggling to broaden the sector’s involvement in the economy, and the search for solutions includes some non-traditional alternatives. For example, updated NAICOM regulations cover the micro-insurance segment of the market, and include a specialised operating licence and basic governance, solvency and policy standards. The regulations define micro-insurance as any coverage of N2m ($6460) or less per beneficiary. Capital requirements range from N40m ($129,000) for a single branch licensee for life and general insurance, to N600m ($1.9m) for those who wish to operate nationally. As of late 2017 about 10 companies were expected to be considered for licensing.

According to the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL), a lending facility established by the central bank, non-traditional alternatives to addressing agricultural risks are being developed that could boost farmer coverage from 500,000 people to 3.8m people. NIRSAL and NAICOM are collaborating with the Nigerian Meteorological Agency and various international development organisations and commercial insurers on index-insurance plans, in which policyholders are entitled to payouts if yields are impacted by risks. These risks include disrupted weather patterns, natural disasters or disease. One such programme, initiated in 2017, attracted 25,000 farmers in its first six months. So far, NAICOM has approved a total of five index-insurance pilot projects and this is expected to increase.

Reform Plans

In a renewed effort to achieve its goals of boosting minimum capital requirements and implementing risk-based supervision, NAICOM announced in 2017 that it intended to relaunch the MDRI. However, as of mid-2018 a formal announcement of the new version was still outstanding.

A boost to capital requirements could be imperative in forcing consolidation in a market that is perceived as having too many small insurers and too few larger ones that are capable of retaining risks and profits domestically. NAICOM statistics indicate that there is a total of 10 life insurers and 15 general insurers with less than 1% market share. In the more fragmented general category, the 15 insurers have a combined market share of 9.1%. The current capital requirements are N2bn ($6.5m) to underwrite life policies, N3bn ($9.7m) for non-life and N5bn ($16.2m) for composite insurers. In early 2018 the Nigerian Insurers Association said that as of 2017, seven companies remained below the required thresholds.

NAICOM has encouraged smaller insurers to see larger buyers or join forces, and also asked brokers to steer customers away from distressed companies. Mohammed Kari, commissioner for insurance and CEO of NAICOM, told media in January 2018 that a boost to capital requirements was forthcoming, though he did not provide a timeline in which that would happen. “In the process of establishing risk-based supervision, we are encouraging insurance companies to come together and form stronger entities,” Kari said. “Where they cannot financially increase their capabilities and abilities, we encourage them to stay within lower classes of insurance within their financial abilities.” Market fragmentation and the lack of insurers large enough to take on major risks is not a problem exclusive to Nigeria. At the 44th African Insurance Organisation conference held in Accra, Ghana in May 2018, Ghanaian President Nana Akufo-Addo told the crowd that domestic underwriters in the region lose approximately $8bn annually to offshore insurance markets.


Kari characterised the consolidation effort as a part of the gradual adaptation of risk-based supervision concepts, and fundamentally, the adoption of the Solvency II regulatory regime established by the EU in 2009. Solvency II increases the number of risks insurers must set aside capital to account for. Previously, the risks considered were limited to those presented by a company’s liabilities. The new system adds asset-based risks such as drops in investment accounts, operational risks and credit risks, wherein third parties fail to pay their debts.

Though implementation of the regulatory reforms under consideration for risk underwriting are subject to delays and challenges, there is a track record of regulation driven growth in the insurance industry, specifically in the pensions segment. Due to a history of asset-management failures and frauds by pension fund administrators, Nigeria passed the Pension Reform Act of 2004 in hopes of rejuvenating the sector and creating a pool of institutional capital that could grow along with the country’s fixed-income market. Since the law passed, assets under management have soared, climbing from N2trn ($3.2bn) in 2010 to N7.9trn ($25.5bn) as of March 2018.

The 2004 reform moved the sector from defined benefit schemes to defined contribution schemes and introduced the National Pension Commission (PenCom) as a regulator. It mandates coverage for public sector workers and employees in private sector organisations with five or more employees, and requires employers to use pension fund administrators to open retirement savings accounts for each employee. PenCom has licensed 21 administrators, who collectively serve 7.3m Nigerians. However, compliance remains a challenge in the area of pension fund access, as just four of 36 state governments provide workers with the necessary accounts and coverage.

According to PenCom’s most recent annual report, published in 2016, the principal administrator Stanbic IBTC Pension Managers holds a 33.7% share of assets under management. The remaining administrators include ARM Pension Managers, NPF Pension Managers, Pension Alliance, Premium Pension, Sigma Pension and Trust Fund Pension, which each manage around 5% of total assets. Pension money must be invested according to the guidelines set by PenCom for asset classes and risk management. This has resulted in 75% of funds being invested in various government bonds.

Pension Reform

The Pension Reform Act of 2004 was followed by the Pension Reform Act of 2014, which lowered fees paid by account holders and gave them a choice of investment strategies. The previous regime required that all pension funds follow uniform portfolio composition standards, including a 25% cap on investments in equities. The current system, adopted in July 2018, gives workers a choice of investment alternatives to suit individual attitudes towards risk. The new options allow account holders to transfer their accounts to different fund administrators without incurring fees, but this type of transfer cannot be completed more than once per 12-month period.

The success of the pension funds segment of the insurance market has resulted in a large pool of capital that many would like to see deployed for macroeconomic gain. Pension fund administrators are under pressure to invest on a dual bottom-line basis, in which capital gains are balanced with the social utility of some of their investments. Examples of this type of investment include the purchase of infrastructure bonds or investment in infrastructure funds, which aid the country in its overall economic development, (see Capital Markets chapter).


Though Nigeria’s insurance industry has yet to exceed a penetration rate of 1%, and the sector is awaiting the regulator’s delayed reboot of its MDRI development plan, several non-regulatory growth drivers could reverse these trends. Oil prices are helping drive the economy out of recession, and with government capital expenditures on the rise, there are likely to be insurable risks in infrastructure and public works, which could aid in growing the bottom line. Alternatives such as micro-insurance and index insurance could also help to expand the pool of potential customers for insurance.

Nevertheless, anticipation of the long-awaited boost to minimum capital requirements, when it is finally implemented, is likely to be the biggest influence on the sector’s potential future growth. Insurers are awaiting regulatory clarity and many appear ready to adjust their long-term strategies in response to it.

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The Report: Nigeria 2019

Insurance chapter from The Report: Nigeria 2019

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