DID THE BANKING SECTOR UNDERDEVELOP THE INSURANCE INDUSTRY IN NIGERIA?

By Ekerete Ola Gam-Ikon

The age-long reference by the public, investors, shareholders, employers, employees, customers and even regulators, to the banking sector when the growth and development of the insurance industry in Nigeria is discussed, calls for the deeper review of their relationship.

Decades ago, when young graduates got employed into either the banking sector or the insurance industry, you could not quite differentiate them with their crispy shirts, plaited ties and corporate suits, especially along Marina in Lagos, where insurance and banking offices competed for spaces.

Life got more interesting in the early 90s as young professionals in both banking and insurance were given licences to operate banks and insurance companies respectively.

Methink the differences between the banking sector and the insurance industry began to show in five (5) key areas namely structure, people, focus, innovation and reward.

• Structure – While in the banking sector, banks were licensed to operate in their areas of specialization such as commercial, investment, merchant and development banks, the insurance companies were licensed to transact Life, Non-Life (General) and Special Risks (Aviation, Construction/Engineering, Marine Hull etc). The former was customer-focused and easier to understand whereas the latter needed customer education then and still does till now. Similarly, insurance had an insurance-focused structure comprised of reinsurers, insurers (underwriters), agents, brokers, loss adjusters, marine superintendents and consultants, probably too much to be understood by other stakeholders, etc;

• People – The emergent banks of the 90s considered the need for “outsiders” to be attracted into the sector to be able to equally attract more people (outsiders) they could relate with. People with little banking knowledge but with degrees in Agriculture, Architecture, Arts, English, Law, Medicine, Music and Transportation, just to mention a few, were recruited and TRAINED to play different roles within the banking sector.

On the other hand, the insurance industry relied on the mantra of having only graduates of insurance employed by operators, from very limited pool located in Awka, Ibadan, Lagos and Zaria. Accordingly, customers were hugely disconnected and the insurance industry only attracted its type both in terms of employees and customers.

Banks had direct contact with customers and influenced their decisions while the multiple insurance operators related with a sense of “you need us”, which has continued;

• Focus – The banks of the 90s focused on customer service just like the insurance companies then but performance had began to be the competitive edge. Banks went as far as engaging ladies with dressing sense to get results while the insurance industry joined the rest of the world to criticize the style apparently because performance had not been brought to the fore by insurance companies. Customers wanted to see insurance companies that were like banks but it did not happen until the banks leveraged on Universal Banking System to win over insurance;

• Innovation – The more the banks focused on customers, the more innovative they became. They just had to listen to customers’ expectations and designed tailor-made products and services to meet their needs while ensuring that the quality of their performances did not drop.

The insurance industry had continued to be insurance-focused and exclusive, only admitting graduates of other courses as Insurance Agents, who used their positions as the route to full employment in other fields.

• Reward – The level of reward the banking sector had adopted boosted by the performance methods they used by far set the sector apart from insurance industry and other sectors. This was even more pronounced when, thanks to the Universal Banking System, the banking sector had access into the insurance industry and dominated it, simply by introducing their performance-reward system.

Banks disrupted the entire insurance value chain and commercialised every side of the insurance industry in Nigeria leveraging the Universal Banking System. By the time the CBN barred the banks from being involved in insurance and other financial services except they had a holding structure, they had become embedded and controlled a huge chunk of insurance businesses till today.

As at the results of the year ended December 31, 2023 the Gross Written Premium (Turnover) of the entire insurance industry in Nigeria was N726b, nearly equivalent to the Profit After Tax of the top 4 banks in Nigeria! You cannot even begin to discuss and compare the Turnovers.

Six banks have become dominant in the current operational structure of the insurance industry and are already impacting the direction of the insurance industry hence the topic of this write-up.

There may be 67 re/insurance licensed companies but based on the horrific stories of unpaid claims, delayed salaries and failure to honour obligations, which has made the regulator, NAICOM to threaten that it will name and shame such insurance companies, there might not be more than 35 reputable ones to deal with.

If more banks with holding structure decide to acquire significant interests in some of these financially weak insurance companies, the dominance of the insurance industry by the banking sector would increase.

Unfortunately, the professionals in the insurance industry in Nigeria do not have the funds to invest and revive these insurance companies, so the options seem limited.

Do you think the banks have helped to develop or underdeveloped the insurance industry in Nigeria? I’ll like to hear your take.

I remain…

Assuredly Yours,

Ekerete Ola Gam-Ikon
+234-802-585-0344
olagamola@gmail.com