CHALLENGES AND PROSPECTS OF LIFE INSURANCE BUSINESS
Life insurance business has suffered setbacks with its insignificant contribution to the industry's premium. NIKE POPOOLA examines the prospects of rejuvenating the sector.
In developed economies that have strong insurance industries, the life arm usually drives the sector by contributing the highest unlike what obtains in Nigeria's where it contributes just about 16 per cent of the industry's total premium.
Nigeria has continued to record the lowest penetration level in Africa's insurance market, in spite of its huge population that is capable of driving the biggest insurance market on the continent.
For instance, South Africa, the largest insurance market in Africa, has a population of 40 million people and contributes 78.13 per cent of the continent's premium.
It rakes in 16 per cent of the country's Gross Domestic Product, while Nigeria's insurance industry contributes less than one per cent of the country's GDP and rakes in 2.3 per cent of the continent's total premium.
Interestingly, the life arm of South Africa's insurance market alone generates about 70 per cent of the industry's total income.
According to 2008 statistics, world's life premium stood at $2.5tn from a total premium of $427tn, while Africa's record revealed a life premium of $37.9bn from total premium of $54.7bn.
In Nigeria, the life arm raked in $0.19bn out of total premium of $1.24bn in the year under review.
With the potential available in Nigeria's population, experts say that if the country is well positioned, it can attain a leadership position on the continent.
They stress that if infrastructural problems are solved, and purchasing power of the masses is raised, there will be positive effects on life insurance business.
Life insurance has the potential to stimulate individual patronage through innovative products, while also carrying less risks compared to the general business.
Due to preference for general insurance business in the past, most insurance company employees prefer to work with non-life than to be associated with the life business.
This has subjected life insurance business to human capital problem because workers do not understand it.
Today, the scenario is changing as awareness is increasing and many are now coming back to the sector.
However, factors that affect life business, according to insurers, are not only about poor awareness, but largely due to the impact of some legislations.
The National Health Insurance Act, 1999, which transferred a traditional part of life insurance business to the Health Maintenance Organisations, and the Pension Reform Act, 2004, which transferred pension business from insurance firms to Pension Fund Administrators and Pension Fund Custodians, are examples of some of the legislation.
The pension business was handle for many years by insurers until a group sold the idea of a contributory pension scheme to the government, which eventually bought it.
The failure of the former scheme in which pensioners could not get their pensions, queuing for days to get their benefits, led to the collapse of the old scheme.
The repeal of the old Pension Act of 1979 and consequential amendment of the Nigeria Social Insurance Trust Fund Act of 1993, brought in the new Pension Reform Act, 2004.
Today, the pension fund has grown tremendously and is in excess of N1.6tn, about 10 times the premium of N164.5bn recorded in the insurance sector in 2008.
In the present dispensation, the sector stands the chance to get boosts from some of the statutory policies set for enforcement.
They are the employer's liability insurance under the Workmen Compensation Act, group life assurance and annuity opened for voluntary patronage by pensioners.
The Workmen's Compensation Decree of 1987 provided cover for permanent or partial disability, accident, sickness and death of workers arising in the course of job.
Section 40 of the Act compelled majorly factory owners to have this policy for all their employees, regarded as workmen.
Section 9(3) of the 2004 Pension Reform Act states that, 'employers shall maintain life insurance policy in favour of the employee for a minimum of three times the annual total emolument of the employee,' under the group life scheme.
Though, this Act has been experiencing some bottlenecks since its official inauguration in November 2008, it is already making impact in the life arm.
When it was officially kick started, the Federal Government paid the largest single premium of N4bn and this year, paid N7bn into the scheme.
Section 4 of the Pension Act provides that on attaining the age of 50 or at retirement stage, which is stipulated by the employees' organisations, a pensioner's RSA savings shall not be withdrawn but shall be utilised either as programme withdrawal or as annuity.
The Act delegates the duty of providing the annuity service to the life insurers, but their share of the fund depends on their ability to win the confidence of retirees.
The Managing Director, Royal Exchange Prudential Life, Mr. Larry Ademeso, says that life insurance business is still developing in the country.
According to him, what the operators had done in the past is to sell the same traditional products until recently when new products started becoming visible.
Ademeso says, 'In a very dynamic environment, the need of the customers and Nigerians constantly change, so you will agree with me that we need to constantly develop new products that will meet the needs and aspirations of Nigerians.'
He notes that though life business is still low in the country, it is not worth comparing the Nigerian economy with others due to certain factors.
Some of the foreign economies with developed insurance sector, he says, include pension accounts as part of their industries' gross figure, which is not the same in Nigeria.
He points out, 'Pension contribution in Nigeria as at the last report was about N1.6tn, so imagine that if this is part of the figure we record in insurance, we will not be talking about the kind of low figure that we constantly talk about.'
Ademeso observes that insurance is not accorded high priority by Nigerians due to the low economic power of the average man.
He says that a man, who is struggling to feed his family and have a roof over his head, will not want to talk about tomorrow because insurance is all about tomorrow.
Until there is an environment where a man can take care of his needs reasonably and comfortably, he explains that he can start to think about future security.
'So, the low penetration of insurance, especially life assurance, is also a function of all these dynamics; but as practitioners, we have a lot to do in terms of product development that can satisfy this critical segment of the society so that even in the midst of the little that they have, they will remember to keep some for tomorrow, that's the role that we need to play and I think we have started to play that role,' Ademeso says.
The Director-General, Chartered Insurance Institute of Nigeria, Mr. Adegboye Adepegba, notes that the country has not fully maximised the potential in its huge population like other developing economies with large populations.
He harps on the need to develop the life market as this will be an advantage to the country on the continent.
According to him, 'If the industry could develop the life market and maximise the potential in the Nigerian population, the face of insurance business in the country will change.'
Adepegba observes that information technology is still at its rudimentary stage in the country's insurance sector while it has been fully developed in other developed sectors with huge population like India, thus allowing premium to be paid on line in any part of the country.
The CIIN boss says that there are presently about 15,000 agents driving insurance penetration in Nigeria, compared to about 20 million in India.
He stresses the need for operators to drive insurance to the grass roots as this will help to grow the sector.
The CIIN boss says that Nigeria has 49 insurance companies, while India has 46 with 23 life and non-life firms each.
He notes that life insurance in India is thriving with the backing of government policies and the existence of over 650 million policies.