The Commissioner for Insurance, Mohammed Kari, has said, the ongoing recapitalization will allow insurance companies in the country to retain huge risks which are presently ceded abroad.
He also opined that the fragmentation of the financial sector in Nigeria is hampering the growth of Insurance industry.
Kari, who stated this at the just concluded 46th African Insurers Organization (AIO) in Johannesburg, South Africa, noted that, unlike in most countries where the financial sector only has one regulator regulating activities of the banks, insurance companies, pension fund operators and Health Management Operators (HMOs), Nigeria has series of regulators, each controlling each sub-sector of the financial sector.
He said, the Central Bank of Nigeria (CBN) controls the banks, the National Pension Commission (PenCom) controls the pension fund operators while the National Insurance Commission (NAICOM) regulates the insurance industry whereas, in some countries, these sectors were considered as one and are regulated by a single regulator, which gives the financial sector of these countries good ratings because the achievements are counted as one.
Whereas pension and Health insurance are classified as the products of Insurance industry in most countries, he said, Nigeria’s case is an exception.
According to him, “Nigeria operates a fragmented financial sector which restricts insurance sector to only the conventional insurance products and services. Pension is seen as a separate industry as well as health insurance when other countries classify pension and health insurance as being under the insurance industry. This is a misnormal, a situation that is affecting the growth of the sector.”
He said, such fragmentation is one of the reasons why Insurance penetration is said to be below one per cent, thereby, limiting the contribution of the sector to the nation’s Gross Domestic Product (GDP).
If health insurance and pension products are added to the insurance industry, he believes, insurance contribution to GDP would rise, as well as the penetration rate which will make Nigerian insurance industry compete with its peers across the world.
Although, he felt Nigerian Insurers must be responsible in meeting and surpassing customers expectation in the area of product delivery and prompt claims payment, he noted that, the low risk retention capacity of the sector also needs to be addressed.
To this end, he said, the ongoing recapitalization exercise will allow local insurers to retain huge risks in the country, thereby, avoiding premium flight, that will, in the long run, increase the profitability of the sector and its impact on the nation’s economic growth and development.
While stating that the recapitalization is long overdue as foreign exchange rate, asset replacement values as well as claims volume have increased in the last 12 years, he added that, operating with the current capital base is putting insurance firms at risk.
He said, insurance operators are fond of resisting recapitalization exercise, whenever the idea is mooted, saying, some insurers prefer to continue to write huge risks in aviation and marine sectors, with small capital, a development, he said, was responsible for why some underwriting firms are struggling to pay claims.
On whether there is the need for recapitalization exercise at a time the country is transiting to Risk Based Supervision (RBS), he said, there is no insurance industry all over the world that do not have minimum capital requirement, which is usually, the entry point.
“All over the world, there is usually, an entry point, which is the minimum capital requirement for an insurer to underwrite risk in a country. Other decisions whether to increase the minimum capital or maintain it, is taken thereafter. So, even under risk based, the minimum capital still exists.,” he said.