The insurance industry’s contribution to GDP is expected to rise in the next five years.

THE FEDERAL GOVERNMENT is planning to further galvanize Nigeria’s insurance sector with a new insurance act that will tighten up on regulation. Remi Babalola, Minister of State for Finance, blames a weak regulatory environment and insufficient capacity for holding back a sector with huge potential.

The minister says the new law will position solvency rules and risk-based supervision to ensure more market-relevant insurance regulation. He argues that existing legislation has acted as a brake on growth and promises a total overhaul to boost confidence in the industry.

Crucially, he wants to make the sector more attractive to investors. “We want an industry that will attract foreign investment and more domestic investment that will help us achieve the level of relevance we require of the insurance sector,” he says.

While the industry is still relatively small in comparison with its counterparts in other developing countries, the main insurance companies have been ringing up impressive profits. Leading the field is Industrial and General Insurance, which reported a pre-tax profit of 2.7 billion naira ($23 million) for 2007, an increase of 177 percent over the 975.64 million naira ($8.2 million) it registered for 2006. Crusader Insurance (Nigeria) announced a pre-tax profit of 1.44 billion naira, as against 267 million naira recorded in 2006, while Custodian and Allied Insurance raised its pre-tax profit to 1.056 billion naira from 627.4 million naira in 2006.

The regulatory authority, the National Insurance Commission (NAICOM), has been working to clean up the image of the industry and ensure that genuine claims are paid promptly. A special consumer-protection unit has been established, and any insurance company that fails to act ethically and professionally will face the commission’s wrath, according to Fola Daniel, the Commissioner for Insurance.

Daniel says the industry has entered an era of strict market discipline in which prompt payment of claims is now the norm. “The most effective advertisement you can give an insurance industry is the settlement of obligations as and when due,” he insists. He is confident that by 2010, the mere exchange of insurance papers should resolve any accident or damage dispute.

NAICOM has been working to clean up the image of the insurance industry and to ensure claims are paid promptly

“The insurance industry is coming from a background of an average 300 million naira capital base. Now the average is 5 billion naira. Some insurance companies have gone to the realm of 15 billion naira, so we cannot have this huge investment and still have a negative image. We are using part of the money to clean up the image of the industry, so that people in Nigeria can trust the insurance industry the way it is trusted in America, in South Africa, and in Britain.”

Daniel says next year will be a turning point in the industry’s progress from its current position as a fringe player to a driving force in the economy within five years. He foresees a bright future in which the industry ceases to be the poor relation of banking and is able to help to drive the economy by investing substantially in sectors such as banking, real estate, telecoms, and oil.

Solomon Onafowokan, president of Lagos Chamber of Commerce and Industry (LCCI), has even suggested that the recapitalized industry could come to be regarded as a more reliable source of long-term finance than the banking sector.

NAICOM has launched an intensive awareness campaign to bring about what amounts to a cultural change by persuading Nigerians and Nigerian businesses of the benefits of insurance. By 2020, Daniel expects to see the industry’s contribution to gross domestic product rise from the current one percent to 10 percent, with insurance penetration increasing from 8 percent to 20 percent.