Life insurance business has suffered setbacks with its insignificant contribution to the industry's premium. Ugochi Osuagwu examines the causes and prospects of the life arm in the insurance business.
In developed economies that have viable insurance industries, life insurance business generally thrives the insurance industry by contributing not only significantly to the industry but also to the Gross Domestic Product (GDP). Contrary to what obtains in Nigeria where life insurance business contributes just about 16 per cent of the industry's total premium all resulting to below 0.1 percent of the sector's contribution to the GDP, in advanced economies, it shores up the capital for the sub sector.
Despite its huge population of about 140million which is capable of driving the biggest insurance market in Africa, Nigeria has continued to record minimal patronage in Africa's insurance market. For instance, South Africa, the largest insurance market in Africa, has a population of 40 million people and contributes 78.13 per cent of the continent's premium. The South African insurance industry contributes about 16 per cent of the country's Gross Domestic Product, while Nigeria's insurance industry contributes less than one per cent of the country's GDP and only contributes about 2.3 per cent of the continent's total premium.
Expectedly, the life arm of South Africa's insurance market alone generates about 70 per cent of the industry's total income. According to 2010 statistics, world's life premium stood at $2.5 trillion from a total premium of $427 trillion, while Africa's record revealed a life premium of $37.9 billion from total premium of $54.7 billion. In Nigeria, the life arm contributes far less than $1 billion out of total premium of $1.24 billion in the year under review.
With the potential available in Nigeria's population, experts say that if the country is well positioned, it can become Africa's hub in insurance business, especially life assurance. They stressed that if infrastructural problems are solved, and the disposable income of the masses increased, there will be positive effects on life insurance business in the country.
According to them, life insurance has the potential to stimulate individual patronage through innovative products, while also carrying less-risks compared to the general business. Due to preference for general insurance business to life insurance business, most insurance company employees prefer to work with non-life than to be associated with the life business. This has subjected life insurance business to human capital problem because workers do not understand it.
The Managing Director, Royal Exchange Prudential Life, Mr. Larry Ademeso, said that life insurance business is still developing in the country. According to him, what the operators had done in the past is to sell the same traditional products until recently when new products became visible.
"In a very dynamic environment, the need of the customers and Nigerians constantly change, so you will agree with me that we need to constantly develop new products that will meet the needs and aspirations of Nigerians," he said. Ademeso however noted that though life insurance business is still low in the country, it is not worth comparing the Nigerian economy with others due to certain factors. Some of the foreign economies with developed insurance sector, he said, include pension accounts as part of their industries' gross figure, which is not the same in Nigeria.
According to him, "Pension contribution in Nigeria as at the last report was about N2 trillion, so imagine that if this is part of the figure we record in insurance, we will not be talking about the kind of low figure that we constantly talk about." Ademeso observed that insurance is not accorded high priority by Nigerians due to the low economic power of the average man. He said that a man, who is struggling to feed his family and have a roof over his head, will not want to talk about tomorrow because insurance is all about tomorrow.
Until there is an environment where a man can take care of his needs reasonably and comfortably, he cannot start to think about future security. "So, the low penetration of insurance, especially life assurance, is also a function of all these dynamics; but as practitioners, we have a lot to do in terms of product development that can satisfy this critical segment of the society so that even in the midst of the little that they have, they will remember to keep some for tomorrow. That's the role that we need to play and I think we have started to play that role," Ademeso said.
The Director-General, Chartered Insurance Institute of Nigeria (CIIN), Mr. Adegboye Adepegba, noted that the country has not fully maximised the potential in its huge population like other developing economies with large populations. He stressed the need to develop the life market as this will be an advantage to the country on the continent. According to him, "If the industry could develop the life market and maximise the potential in the Nigerian population, the face of insurance business in the country will change."
Adepegba observed that information technology is still at its rudimentary stage in the country's insurance sector while it has been fully developed in other developed sectors with huge population like India, thus allowing premium to be paid on line in any part of the country. The CIIN boss said that currently there are about 15,000 agents driving insurance penetration in Nigeria, compared to about 20 million in India.
He stressed the need for operators to drive insurance to the grassroots as this will help to grow the sector. According to him, Nigeria has 49 insurance companies, while India has 46 with 23 life and non-life firms each. He noted that life insurance in India is thriving with the backing of government policies and the existence of over 650 million policies.
However today, the situation is changing as awareness is increasing and many are now embracing the insurance sub-sector. Though, factors that affect life insurance business, according to insurers, are not only about poor awareness, but largely due to the impact of some statutory polices by the government. For example, the National Health Insurance Act, 1999, which transferred a traditional part of life insurance business to the Health Maintenance Organizations, and the Pension Reform Act, 2004, which transferred pension business from insurance firms to Pension Fund Administrators and Pension Fund Custodians, are examples of some of the polices. The pension business was handled for many years by insurers until a group sold the idea of a contributory pension scheme to the government, which eventually bought it. The failure of the former scheme in which pensioners could not get their pensions, queuing for days to get their benefits, led to the collapse of the old scheme.
The revoke of the old Pension Act of 1979 and substantial amendment of the Nigeria Social Insurance Trust Fund Act of 1993, brought in the new Pension Reform Act, 2004. Today, the pension fund has grown tremendously and is in excess of N2 trillion, about 10 times the premium of N164.5 billion recorded in the insurance sector in 2009.
In the present dispensation, the sector stands the chance to get boosts from some of the statutory policies recently flagged off in the sector. These include: the employer's liability insurance under the Workmen Compensation Act, Group Life Assurance and Annuity opened for voluntary patronage by pensioners. The Workmen's Compensation Decree of 1987 provided cover for permanent or partial disability, accident, sickness and death of workers arising in the course of job.
Section 40 of the Act compelled majorly factory owners to have this policy for all their employees, regarded as workmen. Section 9(3) of the 2004 Pension Reform Act states that, "employers shall maintain life insurance policy in favour of the employee for a minimum of three times the annual total emolument of the employee," under the group life scheme.
Though, this Act has been experiencing some bottlenecks since its official inauguration in November 2008, it is already making impact in the life arm. When it was officially kick started, the federal government paid the largest single premium of N4 billion and recently, paid N7 billion into the scheme.
Section 4 of the Pension Act provides that on attaining the age of 50 or at retirement age, which is stipulated by the employees' organisations, a pensioner's RSA savings shall not be withdrawn but shall be utilised either as programme withdrawal or as annuity. The Act delegates the duty of providing the annuity service to the life insurers, but their share of the fund depends on their ability to win the confidence of retirees.
However, the industry's stakeholders have opined that for the insurance industry to play its proper role and contribute effectively to national development and in the process enhance insurance penetration, the legal framework and the regulatory system must be strengthened and aligned to international best practice.
According to them, the insurance industry in Nigeria today is far from perfect when compared to what obtains in other insurance thriving economies. They stressed the need to address the many ills and deficiencies that bedevil the industry, if the nation really wants a strong, disciplined and viable insurance industry. We must put in place a regulatory system that is fully equipped to check these anomalies and the deficiencies that retard the industry's growth in general.