Pension reform legislation and the increase of group life products should support further growth in Nigeria’s life insurance sector, according to ratings agency A.M.Best.
In a report called Nigeria’s Insurance Sector Faces Economic Challenges, but New Government Improves Prospects, the ratings agency said largely as a result of the former Pension Reform Act of 2004, the life insurance industry grew by an annual average of 25.6% between 2004 to 2011, based on figures, from the Nigerian Insurance Association.
Since the previous law was established in 2004, there has been a further development and the legislation has been replaced with The Pension Reform Act 2014 in Nigeria. This is likely to impact Nigeria’s life insurance market.
A.M. Best explains that changes incorporated in the new legislation include the requirements for all companies with a minimum of 15 employees (trebled from the previous act) to partake in the scheme; a rise in the burden to the employer in terms of the amount of contributions paid to the scheme; criminalisation for the misappropriation of pension funds; and the application of stiffer penalties for offences relating to pension crimes.
Small companies and self-employed individuals can also participate in the contribution scheme, but under separate guidelines issued by the Pension Commission, the joint regulator for all pension matters in Nigeria.
A.M. Best said NAICOM, Nigeria’s National Insurance Commission and insurance regulator, appears to be taking a stronger stance in the enforcement of the new act.
For example, through a requirement for employers to provide evidence of group life insurance policies obtained for their employees in order to be able to participate in certain tenders and contracts.
Additionally, the regulator will undertake regular audits of employers to ensure that cover is available.
The report said: "Although in theory, greater oversight should support further growth of the life segment, in practice, the desire to develop an underpenetrated non-life and life industry, coupled with the regulator’s finite resources, means that solving the enforceability issues of this act is likely to be a longer-term objective.
"Nonetheless, A.M. Best expects growth to continue to arise from the life sector, partly due to the increase of group life products, which have enhanced awareness of the benefits of life insurance offerings and hence boosted demand for individual life policies."
A.M. Best added that NAICOM’s initiatives to drive micro-insurance and takaful development are additional drivers that will support growth over the longer term.
In particular, it said funeral expenses are an area driving micro-insurance demand, while takaful remains small but active, in particular in the family takaful segment.
The Timetric report, The Insurance Industry in Nigeria, Key Trends and Opportunities to 2018, notes that according to NAICOM, only 1% of the total adult population in Nigeria is insured. This indicates a greater scope for new insurers intending to operate and establish the insurance business, as well as expanding their business operations.
Nevertheless, the IIC report explains that poverty has been a major obstacle for the growth of the Nigerian economy, as well as the overall insurance industry.
It says: "The country is considered to be one of the poorest in the world, with poverty being its economy’s biggest challenge."