Huge opportunity looms in Nigerian insurance industry

Willem Loots, Director of Insurance for Fitch Ratings and based in South Africa, said: “We know rebasing GDP number does not change the size of the insurance industry in basic terms but it highlights that the penetration of insurance into the market is very low.” He explained that insurance penetration rates in Nigeria sit below those found in nearby Ghana, Angola, Kenya and South Africa. “With the rebasing of the economy, it implies penetration is lower than we thought and would suggest a lot of growth is perhaps possible.” Mr Loots argued that: “There is a compelling story for future growth and interest from investors. It is compelling regards the GDP numbers and it does provide another perspective on what the industry could do to better serve the Nigerian economy.”hideTo date, however, Mr Loots said the insurance market has been fragmented with a large number of players having a fairly even share of the small pot. “If you compare Nigeria to South Africa, Nigeria has 58 insurers sharing total premium of US$1.5bn, compared to 51 insurers in South Africa sharing $28.3bn. So Nigeria has a significant number of players given the size of the market. “And, if you look at the top 10 players, in Nigeria they share about 50 per cent of the assets. In South Africa, the top 10 players share 85 per cent of the assets.” Driving the move towards consolidation still further, Mr Loots said the regulator’s decision not to issue any new insurance licences meant new players would either have to buy an existing concern—or buy its licence. He predicted that the market is likely to see more consolidation through acquisition rather than straight exits from the market. Mr Loots added that greater regulatory oversight was also improving the environment for investors who could have more confidence in the system going forward. The challenges facing foreign capital would include the need for good local knowledge and a sound distribution channel to access the growing market. “Ideally they will be looking for a primary entrant which they can use as a conduit for future growth,” he said. Local banks are already being accessed because of their local knowledge and the all important bancassurance opportunities. Other challenges include the ability to conduct due diligence. “It remains tough,” said Mr Loots. “It is not consistent across the board although some businesses have improved governance and reporting standards and this is something that the regulator is pushing.” Mr Loots added: “I think growth has been talked of a lot in frontier markets but the key is not trying to make too many assumptions around growth but to really interrogate where there is a growth opportunity.” He said the low penetration rates in Nigeria really set the scene for foreign investors, who will also look at the economic growth combined with population growth. “There is a relatively young population who are employable which bodes well for the insurance industry.” Asked where bureaucratic hurdles or corruption would slow that potential, Mr Loots admitted both were problematic in Nigeria. However, he said: “We believe there is potential for these negative elements to be diminished. The current reality is that they are challenges that remain risks that foreign investors face when entering the market.” But despite the market growth potential, Mr Loots is convinced there will be consolidation in the markets and that foreign investors will make the most of those opportunities. “It is unlikely 58 insurers will lead to 58 winners. It is unlikely they will all succeed in the long run and that provides opportunities for consolidation.”

Huge opportunity looms in Nigerian insurance industry

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