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Nigerian insurers need a leg-up from policymakers

By David Whitehouse
Posted on Friday, 29 March 2019 11:39, updated on Wednesday, 24 April 2019 15:00

Improved medical care is only effective if people can pay for it – via insurance. REUTERS/Akintunde Akinleye

Nigeria's insurance penetration rate of less than 1% is way below that of its peers, as African Alliance's interim chairman Anthony Okocha highlighted this week.

Speaking at the launch of the company’s new brand identity in Lagos, Okocha said: “Nigeria’s insurance sector is performing poorly when compared to other African countries like Ghana, our neighbour, and South Africa. Ghana is running at 2.5 per cent, South Africa is closing up to about 14 per cent, while we are at less than one per cent in Nigeria.”

Nigeria’s insurance take-up is low, despite the existence of a national health insurance scheme. Crucially, compulsory insurance offers a gateway to wider penetration and Nigerian states have been slow to adopt and enforce compulsory insurance. A November 2018 report on the Nigerian insurance sector by Afrinvest argues that:

  • What progress has been achieved came on the back of compulsory insurance.
  • Weak capital levels undermine Nigerian insurers capacity to underwrite risks.
  • This is particularly true of high value, high-risk segments of the economy such as energy, marine and aviation insurance.

Life insurance remains a largely unfulfilled market. According to the 2018 Africa Insurance Barometer, among Africa’s top 15 life markets, Nigeria was one of only four countries to post a compound annual growth rate of less than 5% from 2012 to 2016. In non-life Nigeria experienced a sharp contraction of premiums in 2016.


According to Afrinvest, Nigerian insurers perform well in terms of cost efficiency, outperforming those in other African countries. In non-life insurance, Nigeria’s claims ratio was 41.5% for 2017, compared with 444.5% in South Africa, 78.% in Egypt and 72.3% in Kenya. The combined ratio (the ratio of total expenses to gross premiums) stood at 71.5% for Nigerian insurers, lower than the average of 97.8% for the countries surveyed.

Afrinvest also highlights the undervaluation of listed Nigerian insurers by the market.

  • Nigerian insurers have an average price-to-book value of 0.7 times, compared with Ghana and Egypt at 1.3 times, South Africa at 2.9 times and a global industry average of 5.1 times.
  • Key players in Nigeria are AIICO, Axa Mansard, NEM, Custodian Investment, WAPIC and Continental Reinsurance.

Digital channels

Nigeria could consider taking a leaf out of Ghana’s book. Ghana charges informal sector workers small insurance premiums of about $6.1 per year. It also uses VAT and social-security deductions to ensure health insurance for about 40% of its population.

Cost-efficient distribution channels, such as bancassurance, internet or mobile-phone distribution, will be key to selling insurance to a larger share of the population. Nigeria’s insurance industry remains heavily concentrated around Lagos. Digitalised channels have the potential to overcome the challenges involved in selling products in rural areas.

  • The 27 March agreement between the World Bank’s IFC and the Africa Re reinsurance company to give Nigerian farmers access to crop insurance products points the way forward.
  • The partners will develop digital platforms so that farmers can compare insurance offers. Munich Re has argued that by 2025 fintech could lead to Nigeria increasing its GDP by 10%-12%.

Bottom Line

Nigeria’s insurers have proved that they can meet or surpass their peers in terms of financial performance. They need a greater government commitment to compulsory forms of insurance to realise their potential.

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