High cost of doing business hampers insurance growth – experts
By ROSEMARY ONUOHA
Due to the high cost of doing business in Nigeria, manufacturing firms owned by multinationals have formed the habit of cutting down on insurance, experts have said.
According to Managing Director of Royal Exchange General Insurance Company, Mr. Olutayo Borokini, such development has resulted into falling of premium rates in the industry.
Borokini said “”The issue is complicated by multi-nationals because most manufacturing firms owned by multi-nationals have to contend with the cost of doing business in Nigeria, which is very high, they try to manage their cost and one of the areas of doing so is insurance. For an example, the management of a company would tell their broker, we are not ready to spend more that N100 million on insurance for a year, how you are to structure the programme is up to you.
“Then the broker would go around shopping, trying to beat down rate through reduction in prices. That would force the price down. That is the trend we are having now. Most of the industrial risk businesses are not well priced. In some cases the re-insurers have to intervene by rejecting the risks,” Borokini said.
According to him, the future of the insurance companies lies in retail, adding that the growth of the industry in past years has been skilled towards wholesales which have narrowed the distributive channels of operators, coupled with the fact that there are too many players for the businesses that are available.
Borokini wondered how possible it is, to effectively control 60 insurance firms in Nigeria, stressing that in most cases there are about five underwriters on a particular business, and if the five reject a risk, a broker who has the business still has an opportunity to take other five in the market and can continue until he exhausts all available underwriters in the industry.
He said, “The bane of the industry is rate cutting. Because of the number of players in the market and with few businesses available, coupled with the weak economy, we have more demand than supply. And there are no new businesses, so there are intense competitions. With the competition, some operators have to lower the price in most cases. There are supposed to be industry standard, but it is not adhered to. Competition has forced down the prices of insurance products.”
Also, Managing Director of Riskguard-Africa Nigeria Limited, Mr. Yemi Soladoye, said the industry is made up of too many cottage companies, adding that what the industry writes as annual premium income is not up to premium that a branch or agency of a company writes in a normal insurance setting, as such the industry does not need many small firms to thrive.
Soladoye said “We do not have what I would call real insurance company in Nigeria. What we have is what I can call cottage companies. What the industry writes as annual premium income is not up to a premium that a branch or agency of a company writes in a normal insurance setting.
“For example, look at the results of Fortune 500, American Insurance Group (AIG) and more. These are companies that are generating about $250 billion premium each year. If you convert that to naira, it is about N4 trillion. Last year, analysis was done of the 500 biggest companies in Africa, on the report was 20 insurance companies, none is from Nigeria.”
“So, we are not there. A small country like Mauritius, with a population of 1.2 million people, is generating 60 per cent of the premium income of Nigeria. That is because retail insurance has taken center place there. The number of insurance companies has not really impact the market. China, has a population of about 1.3 billion people, I am not sure the number of insurance firms there are up to ours. India has a population of 1.1 billion people the number of insurance firms is not up to 40.”
Soladoye therefore advocated for the right thing to be done, saying “”When the right thing is done, when operators have the vision to create a big visionary customers service oriented company, people will see the need to merge. People will see the need to create big companies.”
Soladoye said that the embrace of retail marketing will end the price war in the industry.