By Nike Popoola

Wednesday, 17 Nov 2010

Despite the devastation inflicted by the global economic meltdown on many world economies, the Nigerian insurance industry was largely unaffected.

Investigation by our correspondent showed that the industry’s premium grew by 33.5 per cent or N50bn from N150bn in 2008 to N200bn in 2009. This was at a time when other segments of the financial services industry suffered a massive decline.

Investigation further showed that while other sectors of the economy were yet to get over the effects of the crisis, the insurance industry was able to weather the storm due largely to the enactment of the Local Content Policy in the oil and gas industry by the Federal Government and the enforcement of some statutory insurance policies.

Statistics from the Nigerian Insurers Association showed that premiums from compulsory insurance policies rose from N32bn for motor policy, N10bn for workmen compensation, and N29.3bn for life insurance in 2008; to N41.6bn, N13.4bn and N39.1bn, respectively in 2009.

These policies alone increased the sector’s total premium by N22.8bn last year.

Premium earned from the oil and gas business rose by N6.5bn from N19bn in 2008 to N25.5bn in 2009.

The premiums of other insurance policies, such as fire, general accident, miscellaneous, marine and aviation, rose from N12.6bn, N20bn, N10.3bn and N16.5bn respectively in 2008; to N17.3bn, N30.9bn, N13.8bn and N18.7bn a year later; with the policies earning an additional N21.3bn premium.

A life insurance underwriter and Managing Director, African Alliance Insurance Plc, Mr. Alphonsus Okpor, attributed the rise in the sector’s total premium to the implementation of the compulsory insurance policies and the Local Content Law, saying that these were already yielding results.

He said, “In the life business, the increase in premium was actually due to the implementation of the Pension Reform Act. The compulsory insurance policies have started yielding results. The increase also came from higher retention of risks from the oil companies and the aviation sector.”

When stakeholders in the financial system demanded for an explanation on the industry‘s true state of affairs from the National Insurance Commission, the Commissioner for Insurance, Mr. Fola Daniel, had said that the sector was not in a deplorable state to necessitate a bail-out, unlike other sectors.

According to him, though there is no pressing need for a special bail-out for the insurance sector, if the market is deepened and opened up, operators will have more opportunities to enhance their business.

Opening up the market, he explained, was a means of ameliorating the problems associated with the financial crisis.

The Director-General, NIA, Mr. Sunday Thomas, said that the insurance business was different from others in the financial sector.

Thomas said, ”We are risk bearers and as much as possible, the way and manner in which we manage risks make us to foresee things that are likely to happen. The investment structure is not so tilted as to warrant a diminution, which will require a bail-out package.”

He, however, added that the bail-out package that the other sectors got actually boosted and motivated the insurance sector because clients were able to pay their premiums.

A general business underwriter and Managing Director, Anchor Insurance Company Limited, Mr. Ademayowa Adeduro, said that the two major factors that contributed to the rise in premium in the insurance sector were the implementation of the local content policy in the oil and gas sector and the compulsory insurance policies.

Adeduro explained that the insurance sector did not ask for a bail-out because it just came out of the recapitalisation exercise when the meltdown began and that the firms were liquid enough then and were looking for profitable ventures to invest their newly acquired capital on.

According to him, “We were not directly affected, but we were indirectly affected because our clients were affected. Our clients are the banks and the manufacturing industries, which were affected by the meltdown.”

The Anchor boss said that the insurance industry was, however, indirectly affected by the meltdown and the reforms in the banking sector because wealth was not been created.

He said, ”When the manufacturers cannot access credit or funds from the banks to boost their business, this had a negative impact on insurance and 2009 was a tough year for the sector.”

Source: Punch