Over the years that BMI has been monitoring the Nigerian insurance sector, the story has remained the same even as premiums (appear to) have grown. An industry that is largely ignored by foreign multinationals (with South Africa’s Metropolitan being an important exception) consists of a large number of (extremely) small, predominantly listed, indigenous insurers. As is explicitly noted in the discussion by NAICOM, the regulator, of the objectives for its Market Development & Restructuring Initiative (MDRI), there are a number of bogus insurance companies that the regulator is keen to close. The regulator is also keen to improve capitalisation and standards among Nigeria’s 15,000 insurance agents and 350 brokers, a community in which sharp practice has also been rife in the past. Thus far, there has been no sign that the MDRI has had a substantial and positive effect on insurance penetration or popularity in a country where 94% of people are completely uninsured.

Nigeria Insurance Market Report 2012

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The MDRI assumes that six lines of compulsory insurance will be purchased in a country where lack of trust between clients, brokers/agents and insurance companies has been the norm – and compliance with rules exceptional. Compulsion is also the key theme in the Nigerian Oil & Gas Industry Content Development Act of 2010, which essentially stipulates that 70% of insurance bought by the country’s energy industry must come from Nigerian insurers. It is not clear that the insurers have the capital to write this business. Nor is it clear that they have the capacity to price the energy-related risks properly: in the past, one of the key features of the sector has been a tendency for some companies to seek growth in premiums regardless of profitability. Indeed, it is possible to envisage massive problems if some of the Nigerian insurers were to suffer enormous claims in relation to risks that they had mis-priced – or if some of the players in the Nigerian energy sector were tardy on actually paying substantial premiums to the insurers.

In short, we are less excited about the new Act and the MDRI than are some of Nigeria’s insurers. In relation to the MDRI, we note that total premiums in 2012 will be about one third of the NGN1,000bn that was originally envisaged by NAICOM. We believe that, through 2012, there will be two factors that will provide a useful indication of where the industry is headed. One is the new database that the Nigerian Insurers Association (NIA) is setting up in order to combat claims fraud and to improve information about risks (especially for motor and marine lines). Any demonstrable success in this area will be very good news. The other is the achievements of the bancassurance JV between United Bank for Africa Plc and South Africa’s Metropolitan. The latest indications are that its premiums are growing rapidly from a low base. Nigerians will buy insurance from organisations that they trust.