As a continuation from the previous post, this will provide further explanations concerning the drivers of Gross Written Premiums (GWP) within Nigeria’s insurance space, life and non-life insurance segments, as well as an outlook for the Nigerian insurance space.
In 2015, Nigeria’s 10 largest general insurance companies accounted for over half (56.2%) of total gross written premiums (GWPs) The insurance industry is composed of 56 insurance companies that can be split into a mix of life insurance, general, and reinsurance providers. While there are a handful of large companies in insurance, most are small players. Insurance gross written premiums (GWPs) have been rising in recent years. GWPs for the industry as a whole were up by 1.9% in 2014 and 2.7% in 2015. The top 3 insurers (Leadway, Custodian and AXA Mansard) accounted for 28% of GWP in 2016 compared to 22% in the previous year. The expected key drivers for overall growth in GWPs in Nigeria include rising population growth, positive gross domestic product (GDP) growth, increase in digitalisation (a positive technological change), supportive policies introduced by NAICOM ( the regulator), rising consumer demand and rising competition. Please see the first post for a SWOT analysis of Nigeria’s insurance industry.
Together with the already identified opportunities, risks to the increase in GWPs of the Nigeria’s insurance companies include the unpredictability of returns for shareholders/stakeholders, underwriting risk, capital risk (risk that insurance companies face in relation to current and future capital or shareholder funds), technological capacity, distribution risk, lack of proper education about insurance products, unskilled and insufficient talent pool from insurance companies can draw from, challenges in implementing innovation due to Nigeria’s challenging infrastructure environment, reinsurance risk, and regulation risk (concerns with the immediate and practical aspects of regulatory requirements)
Nigeria’s Insurance market can be split into long-term (i.e. life insurance and annuity business) and short-term insurance market (general insurance) premiums. It is worthy of note that within the short-term insurance market, the top 20 companies out of a total 41 companies active in this segment accounted for 77% of the market in 2016 (from 73% in 2015). The main insurance products in Nigeria’s general (non-life) insurance market are the motor, oil & gas, fire & accident, marine and others (under others we have health, agricultural, micro insurance, and takaful). In the non-life segment, growth in recent years, however, has been disappointing, with the non-life segments contracting by 0.1% in 2014 and growing by just 1.3% in 2015. ( the top 3 non-life insurers are Leadway, Custodian and AXA mansard). Although growth in the non-life segment wasn’t as strong as the life segment, non-life policies had previously experienced healthy growth in 2011, with GWPs increasing by 11.7%.
Additionally, the long-term insurance segment is mainly driven by pension reforms which NAICOM has introduced in the pensions industry. The Nigeria 2014 pension reforms act provides retirees with the option of purchasing annuity for life from a life insurance company or making a lump sum withdrawal while accessing the remainder via programmed withdrawals. The pension reform also makes it compulsory for every employer of labour in Nigeria to maintain a Group Life Insurance Policy. The contribution to life annuity premium to life industry premium increased to 59% in 2015 from 5% in 2011.
The insurance industry is mainly uneven compared to what we see in other countries. In the life insurance segment, the top three (Leadway, AIICO and African Alliance) firms were responsible for 54.1% of GWPs with the remaining 45.9% spread among 19 smaller companies. The life segment, which held 31% of the market, in 2015, has experienced stronger growth in premiums than non-life segments, which accounted 69% of the market. Both areas witnessed very strong growth in 2011, but have failed to recreate that expansion in subsequent years. Life insurance recorded a 34.8% increase in GWPs in 2011. All these facts suggest that opportunities are attractive for insurance and reinsurance companies.
Growth opportunities are robust for Nigeria’s insurance industry— but so are the risks. According to Oxford Economics, Nigeria’s insurance market will grow at 10% annually from 2014 to 2018, reaching US$2.6bn annually in premiums, up from US$1.8bn in 2017. Potential investors will do best to be aware of the realities the Nigerian insurance space. This entails an understanding of the opportunities and risks faced in the insurance industry going forward. It will also require investors to come to their own conclusions as to whether the main drivers behind this market’s demand will be strong enough to enable its future growth in terms of both density and penetration. If newbie investors deem it so, it would be wise to position in fundamentally sound stocks within the insurance sector. Also, last but not least, the newbie investor should continue to educate themselves on the use of insurance products as it provides ample tools to protect their wealth. For instance: a number of Nigerians have benefited from registering for insurance products to protect them against the risk of school fees. In the unfortunate scenario that a parent dies, if the customer signed up for such a product, then the insurance company will pay the school fees of the child until completion of the child’s education. This instance is one of the many ways individuals can benefit from insurance products.