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Insurance Recapitalization: The Quest for Efficiency

May 05, 2021   •   by   •   Source: Proshare   •   eye-icon 929 views

Wednesday, May 05, 2021 /01:22 PM / by CSL Research/ Header Image Credit: Wikipedia

 

As the phase II deadline for the recapitalization of the NigerianInsurance Industry draws nearer, cracks are beginning to emerge from the wall.The most recent being the National Insurance Commission's (NAICOM) revocationof UNIC Insurance Plc's license with effect from the 25 March 2020.Consequently, the firm was handed over to a receiver/ liquidator to ensure aseamless liquidation process. According to Mr. Sunday Thomas, the InsuranceCommissioner, the company currently manifests every symptom of a business thatwould not survive the recent wave and all efforts to resuscitate it are beingfrustrated by its owner.

 

Over the years, especially since the last recapitalization in 2007, theindustry has been engulfed in a brawl between the laggards and the high-fliers.While the underperforming entities constantly have issues of delay in claimspayment, which has created distrust for the general insurance proposition inNigeria, the 'high-fliers" have continued to battle that narrative throughincreasing levels of efficiency. NAICOM has also been coming up with policiesto ensure seamless insurance delivery. Recall that in 2019, NAICOM institutedmeasures to ensure that players in the industry make prompt claims and benefitssettlement as part of its quest to restore the eroding public trust forInsurance in Nigeria.

 

Since the policy of recapitalization was proposed by the regulator,activities have intensified in the industry as players seek to meet the stateddeadlines. For instance, we saw a flurry of bonus issuance of shares inDecember 2020, as firms sought to meet the Phase I deadline by convertingretained earnings to paid-up capital as directed by NAICOM. This followed inthe track of the series of takeovers that were announced in late 2019 and early2020. We note that beyond improving underwriting capacity in the industry, therecapitalization exercise would eliminate operationally weak firms that havebeen a clog in the wheel of the industry over time.

 

In our view, there is enormous potential for theplayers in the insurance industry in Nigeria given its untapped potentials asinsurance penetration remains significantly low. To tap into this, however,would require players to come up with innovative products. One of suchinnovative ideas in our view, is developing products targeted at millennialsand Gen Z, who are currently excluded from the insurance net in Nigeria;despite constituting a sizeable number of Nigeria's population. Opportunitiesin the insurance industry are widely unexplored and a combination of favourablepolicies from NAICOM and efficient delivery by surviving players can help openmore untapped areas.


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 Proshare Nigeria Pvt. Ltd.


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Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

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