Emerging trends in Nigeria’s insurance sector

The Nigerian insurance industry players are structured into four groups: insurers and reinsurers, insurance brokers, agents and loss adjusters. The insurance and reinsurance companies underwrite risks while the insurance brokers and agents act as intermediaries between the underwriters and the policy holders in the sale of insurance products and the collection of premiums. The loss adjusters, on the other hand, determine the appropriate valuation of the loss incurred in the event of a claim.

Changing market focus

  • The Nigerian insurance industry has been broker-dominated as insurance brokers play a central role in the activities of the industry accounting for about 70% of industry premiums.
  • Brokers in Nigeria drive insurance business by intermediating between the corporate organisations and insurance companies. Brokers bid for underwriting contracts and then contract the underwriting policy to insurance companies. This has given the brokers significant influence in the market and their activities have affected insurance companies both positively and negatively.
  • In an effort to diversify the market, reduce the significant influence of brokers and deepen insurance penetration, insurance companies are beginning to explore the potential of the insurance retail market. Considering the growing middle class in Nigeria, rising disposable income and the population, the opportunities in the retail segment of the market appear to be compelling for insurance companies looking to grow.

Introduction of new insurance products

As insurance companies look to capture the retail market, new insurance products are being developed and tailored to serve the retail consumers. Some of the new insurance product developments include:

  • Micro insurance
  • Takaful insurance

Micro insurance relates to insurance products designed for low-income consumers who are under-served or under-insured. The development of micro insurance products seeks to provide insurance policies with low levels of premiums, customised and easy to understand products, as well as simple collection and claims processes.

Takaful insurance is a form of insurance that is compatible with the principle of the Shari’ah (Islamic law). It is comparable with elements of mutual insurance and ethical finance and is open to all regardless of faith. There is great potential for this business as there is a significant Muslim population in Nigeria.

Changing distribution model

While brokers remain the largest distribution channel in the insurance market, the development of the retail market is changing how insurance products are being distributed as underwriters now seek to directly market and distribute their products to consumers. This is creating a rebalance of the sector’s distribution mix and is also significantly affecting the net cash positions as well as customer acquisition.

Insurance companies now seek to reach the retail market through: community-based organisations; micro finance banks; non-governmental organisations; religious organisations; and employers.

Attraction of new foreign players

The low insurance penetration, rising middle class and strong demographics in Nigeria has presented a compelling case for foreign players to enter the market. As a result, the industry has witnessed the entry of three foreign players through the acquisition of local insurance companies within the last 24 months.

  • Old Mutual, a South African insurance company, acquired a majority stake in Oceanic Life Assurance from EcoBank Transnational Incorporated.
  • NSIA Participations SA Holdings, a Pan African insurance company based in Côte d’Ivoire, acquired a majority interest in ADIC insurance, a subsidiary of Diamond Bank, one of Nigeria’s leading banks.
  • Sanlam, another South African insurance company, acquired a minority stake in FBN Life, a subsidiary of First Bank Nigeria, a leading Nigerian bank.

There are strong expectations that other foreign players will enter the Nigerian market through acquisition of insurance businesses that have been earmarked for disposal from banking groups since changes in banking regulation no longer allow universal banking business for banks or through organic entry into the market.

Outlook of the insurance market in Nigeria

The Nigerian insurance market, both life and non-life, has been projected to grow at about 16% between 2013 and 2015. However, enormous potential for very strong double digit growth exists given the low penetration rate when compared to similar emerging markets.

The following is the expected outlook for the industry:

  • New regulatory developments are expected to drive market depth and transparency.
  • Further consolidation is expected in the near future as industry players seek scale to drive business growth.
  • Increased foreign participation due to low penetration and strong retail potential which will ultimately increase industry competitiveness.

Anthony Sarpong is a partner in KPMG’s audit division in Nigeria.