Reacciones adversas

5.1 Introduction

The literature review supports the view that micro-insurance reform is a process of institutional change, and at the heart of such reform is trust-building in institutions as well as the introduction of tools and policies that improve the level of efficiency in the sector. Part of the insights gained from the theoretical review is that informal institutional norms such as trust, religion, and risk perception support formal regulatory reforms to achieve their designed outcomes. Also, incremental and path-dependent characteristics of institutional change shape the reform outcome.

Therefore, it is important to look at how the perceptions and beliefs of institutions evolved with the (micro) insurance reforms and development, to understand their impacts on reform performances. This chapter is therefore aimed at looking at the reformations that have happened in Nigerian (micro) insurance industry and how such reforms have impacted both the perception of people and the development of the sector over the years. It will be followed by chapter 6, which will investigate the effect of informal and formal institutional characteristics on the development of micro-insurance in Nigeria.

The rest of this chapter is structured in this way: section two looks at the broad country context and economic realities in Nigeria. This is followed by section three and four, which looks at the review of the insurance market and the regulatory landscape of insurance operation in Nigeria, respectively. Section five compares the Nigerian insurance industry with the insurance industry in selected countries around the globe, while section six outlines some of the problems inhibiting the sector.

Section seven, eight and nice looks at micro-insurance in Nigeria, its potential market and distribution channels, respectively, before the concluding section 10.

106 5.2 Broad country context

Nigeria is an Anglophone country in West Africa that gained her independence from British rule in 1960 and has finally started enjoying relative political stability after enduring 29 years of military rule, which lasted from 1966 to 1979 and 1983 to 1999. With a geographical area of approximately 351, 787 square miles, and current population of approximately 197 million people, the country is the most populous in Sub-Sahara Africa, accounting for about 47% of West Africa’s population (World Bank, 2019). In terms of population distribution, around 51% of the total population lives in urban areas. With a median age of 19.2 years and life expectancy of 53 years, Diaz et al. (2013) called it a ‘populous, young, diverse country’ that is presently the seventh most populous in the world and growing by about 2.5% per year. The country consists of 36 autonomous states and over 250 ethnic groups with English, Hausa, Igbo and Yoruba the most widely spoken languages. Nigeria is nearly equally divided between Muslims (50%) and Christians (48.2 %) with the majority of Muslims mainly concentrated in the northern part of the country, while the Christians dominate the middle-belt and southern part (Central Intelligent Agency, 2013). Nigeria is rich in natural resources, such as natural gas, petroleum, tin, and iron. The economy is primarily based on the export of oil and gas, which provides 80% of state revenue and 40% of GDP. With oil prices plummeting to an average of around $45 per barrel in early 2016, down from high of $115 in 2014, Nigeria experienced a severe drop in state budget revenue, and the economy drifted into recession.

According to World Bank, the oil price is the primary determinant of the country’s growth pattern, driving growth to a high of 8% in 2006, a low of -1.5% in 2016 and average GDP growth of 5.7% per year between the years of 2006 and 2016.

The volatility of the growth caused by the volatility in oil prices imposes significant welfare costs for Nigerian citizens (possibly with the exception of a few) and poses a challenge to the government to build an institutional and policy framework capable of cushioning such adverse effects and, with a view on diversifying the economy,

supporting the growth of the non-oil economy². The recent positive trend in economic growth in Nigeria supports such a broad-based institutional and policy framework. In 2018, the non-oil economy such as information and communication technology, was the main driver of growth in the country, while the oil and gas sector reverted to contraction after driving the economy out of recession in 2017. However, due to societal and ethnic conflicts, such as Boko-haram and herdsmen/farmers war, and adverse weather events (mainly in the northern part of the country), growth in the agricultural sector has neither matched government projections nor the population growth rate.

The contraction of growth in the already non-labour-intensive oil sector since 2014, coupled with the slow growth in the agricultural industry, in which approximately 70% of the population engages at a subsistence level, have increased the national unemployment rate. The World Bank reports that the rate of unemployment in Nigeria rose to 2.7%, resulting in 25% of the labour force being unemployed in 2018 and another 20% under-employed (World Bank, 2019). It is worth mentioning that these figures by the World Bank may not even tell the full story due to lack of proper documentation, or under-documentation of the unemployed in Nigeria. According to Diaz et al. (2013), the absence of any kind of state-organised system of unemployment benefits offers no incentive to the unemployed to register with the unemployment agencies to thereby assist in producing more accurate documentation.

2 Whereas the first will lead in this thesis to the issue of micro-insurance, the second remains beyond the topical reach. The viability of the latter is more a question of the Dutch Disease, or more generally of the so-called resource curse.



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Also, with a Gini coefficient of 0.486, and a World Economic Forum (WEF)’s Human Capital Index ranking of 152 out of 157, the World Bank (2012) classifies Nigeria as a lower-middle-income country with a weak human capital endowment.

There is a similar classification by the WEF as can be seen in the above figure. These classifications are no surprise given that the country is characterised by a thriving oil economy and high–income elite on the one hand, but persistent poverty and low socio-economic development of the majority on the other hand. Furthermore, the country continues to battle unresolved developmental issues, which include the need for more diversified and non-oil sector development, address infrastructural problems, and build reliable and effective institutions and organizations.

5.3 Insurance Sector

Insurance in Nigerian traces back to the colonial era of the nineteenth century, when the British empire used shipping and banking to expand its commercial activities (Osaka, 1992). By the mid-70s, there were about 70 insurance companies in Nigeria, 56 indigenous and 14 foreign-owned companies. However, at this time, foreign insurance companies accounted for about 53% of total gross premiums and covered most insurable risks, while indigenous insurers accounted for only about 47% due to their limited underwriting capacity (Chibuike & Chikeleze, 2001). Since late 1970, the Nigerian government introduced new laws and regulations to encourage local ownership of insurance companies. As a result, today, domestic investors hold approximately 60% of the shareholdings of insurers operating in Nigeria (Osaka, 1992).

In 2005, following reforms of the banking sector, Nigeria’s Federal Government along with the insurance regulator NAICOM, began a process of overhauling the Nigerian insurance industry. The main objectives of the new reform were:

 To increase the low retention capacity of the industry that had stunted its growth and expansion.

 To conduct a consolidation exercise to produce companies capable of meeting claims obligations and compete at the global level.

110

 To attract foreign capital into the industry so that premium growth is accelerated and profitability raised.

 To encourage the industry to realize synergies from mergers and acquisitions, to achieve superior product innovation, deeper market penetration, and product distribution. (NAICOM, 2005).

Under the new reforms, new capital requirements were stipulated for insurance underwriters. For example, the required minimum capital for life insurers was increased from N150 million (USD$0.4 million) to N2 billion (USD$5.5 million), and composite insurers (licensed to carry out both life and no-life insurance) were required to operate life and non-life business segments as separate entities (Obaremi, 2007). The bid to meet the guidelines resulted in a spate of mergers and acquisitions in the industry-leading to a reduction in the number of firms from 104 to 71 post-consolidation, consisting of 43 non-life insurance underwriters, and 26 life insurers.

Also, in 2010, the central bank of Nigeria (CBN) required banks to divest from non-banking activities, including insurance. While most banks formed economic groups to keep their insurance activities in a separate company, some dropped the business entirely.

5.4 Segments of the Nigerian insurance industry

As of April 2012, there were 61 companies (59 insurers and 2 reinsurers) in the industry, which is a large number for a market producing a total gross premium of NGN201billion in 2010. (Cia 2013). Out of the 61 companies that operate in the industry, 32 operate in non-life, 17 in life, 10 are composite insurers, and 2 are reinsurers.

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