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Relevance of Insurance During Meltdown
- By Rosemary Onuoha
- Published October 19th, 2009
- InsuranceWorld
- Unrated
IN the wake of the global economic crisis, the Nigerian insurance industry prided itself as the sector that will salvage the Nigerian economic scene from the turmoil of the financial crisis.As risk bearer, the insurance industry was of the opinion that it will serve as a hedge to the other sectors of the economy in mitigating the effects of the meltdown.
However, with the unprecedented losses that characterised the financial statement of most insurance companies for the 2008 financial year, observers of economic trends are worried that the risk bearer may be facing far risk.
Still under the notion that it can serve as a hedge to the economy, stakeholders in the insurance industry gathered at the national insurance conference organised by the Nigerian Council of Registered Insurance Brokers (NCRIB) to brainstorm on how the industry can reflate the national economy.
Challenges confronting the insurance sector
According to Mr. Akin Ogunbiyi, managing director of Mutual Benefits Assurance Plc, who spoke on the topic, “Micro insurance: the Next Resolution,’ listed some of the challenges facing the Nigerian insurance industry to include very poor developed distribution channels; high receivables; unsophisticated product offerings; poor public perception as well as lack of requisite skill to participate in highly specialised transactions.
Others include inability to attract and retain skilled talent; low technology leverage; low investment and asset management capabilities as well as poor regulatory oversight, Ogunbiyi maintained.
Effects of the crisis on the insurance sector
Wole Oshin, chairman of the Nigerian Insurers Association (NIA) who spoke on the topic, “Reflating the global economy through insurance”, said the great depression of 2008 has changed the way risk way assessed.
Oshin maintained that insurance companies by their very nature must come up with products to support businesses and financial institutions so that they can confidently expand their operations.
Other effects of the meltdown, according to Oshin, is the toll on investments with diminution in value of shares and in some cases loss of deposit to distressed banks as well as increase in fraudulent claims.
For Ogunbiyi, Nigeria is indeed a virgin insurance market and in spite of the potentials and the opportunities the industry has, the reality is that the stakeholders are not doing enough to explore and exploit insurance for a meaningful contribution to economic growth and development of the nation.
In his words, “Remember, the economic meltdown is here. Nigeria, with her 140 million population, its nature and economic characteristics, present a wonderful avenue (a new market) for the penetration and deepening of insurance services through micro insurance.”
The role of insurance
Insurance, according to Ogunbiyi, is the most effective means of reducing the vulnerability from the impacts of disease, theft, violence, disability, fire and other hazards. Insurance protects against unexpected losses by pooling the resources of the many to compensate for the losses of the few, the more uncertain the event, the more insurance becomes the most economical form of protection, Ogunbiyi noted.
In his words, “Policyholders only pay the average loss suffered by the group rather than the actual cost of an individual event; insurance replaces the uncertain prospect of large losses with the certainty of making small, regular affordable premium payments.”
He explained that the primary function of insurance is to act as a risk transfer mechanism, to provide peace of mind and protect against losses. Risk can be handled either by; assumption, combination, transfer or loss prevention activities. Insurance schemes utilise the combination method by persuading a large number of individuals to pool their risks into a large group to minimize overall risk.
However for Oshin, if the insurance industry wants to play its role in reflating the economy, certain products needs to be in place and they include credit swap insurance modules; mortgage insurance; professional indemnity insurance; directors and officers liability insurance as well as fidelity guarantee insurance.
Others are life insurance; annuity insurance; political risk insurance as well as underwriting share offers, Oshin noted.
The way forward
On the way forward, Oshin noted that insurance companies should come up with meaningful products that can support the financial system other than the more traditional products as well as continuously increase the awareness of insurance across board as campaigns should go to the grassroots, villages, schools, governments etc.
In his words, “Life insurance products have long assisted estate planning and mortgages. I see a situation where this would be further developed as there is a rebound in the economy”.
For Ogunbiyi, there are many challenges facing the operation and management of micro insurance and over the years many schemes have failed. However, adapting to innovative techniques, experience and new knowledge, many micro insurance service providers have been able to achieve sustainability and visibility in the long term.
In his words, “Given the fundamentals, the Nigerian insurance industry has a new and enormous market waiting to be explored and exploited for the attainment of relevance in economic growth and development.”
However, with the unprecedented losses that characterised the financial statement of most insurance companies for the 2008 financial year, observers of economic trends are worried that the risk bearer may be facing far risk.
Still under the notion that it can serve as a hedge to the economy, stakeholders in the insurance industry gathered at the national insurance conference organised by the Nigerian Council of Registered Insurance Brokers (NCRIB) to brainstorm on how the industry can reflate the national economy.
Challenges confronting the insurance sector
According to Mr. Akin Ogunbiyi, managing director of Mutual Benefits Assurance Plc, who spoke on the topic, “Micro insurance: the Next Resolution,’ listed some of the challenges facing the Nigerian insurance industry to include very poor developed distribution channels; high receivables; unsophisticated product offerings; poor public perception as well as lack of requisite skill to participate in highly specialised transactions.
Others include inability to attract and retain skilled talent; low technology leverage; low investment and asset management capabilities as well as poor regulatory oversight, Ogunbiyi maintained.
Effects of the crisis on the insurance sector
Wole Oshin, chairman of the Nigerian Insurers Association (NIA) who spoke on the topic, “Reflating the global economy through insurance”, said the great depression of 2008 has changed the way risk way assessed.
Oshin maintained that insurance companies by their very nature must come up with products to support businesses and financial institutions so that they can confidently expand their operations.
Other effects of the meltdown, according to Oshin, is the toll on investments with diminution in value of shares and in some cases loss of deposit to distressed banks as well as increase in fraudulent claims.
For Ogunbiyi, Nigeria is indeed a virgin insurance market and in spite of the potentials and the opportunities the industry has, the reality is that the stakeholders are not doing enough to explore and exploit insurance for a meaningful contribution to economic growth and development of the nation.
In his words, “Remember, the economic meltdown is here. Nigeria, with her 140 million population, its nature and economic characteristics, present a wonderful avenue (a new market) for the penetration and deepening of insurance services through micro insurance.”
The role of insurance
Insurance, according to Ogunbiyi, is the most effective means of reducing the vulnerability from the impacts of disease, theft, violence, disability, fire and other hazards. Insurance protects against unexpected losses by pooling the resources of the many to compensate for the losses of the few, the more uncertain the event, the more insurance becomes the most economical form of protection, Ogunbiyi noted.
In his words, “Policyholders only pay the average loss suffered by the group rather than the actual cost of an individual event; insurance replaces the uncertain prospect of large losses with the certainty of making small, regular affordable premium payments.”
He explained that the primary function of insurance is to act as a risk transfer mechanism, to provide peace of mind and protect against losses. Risk can be handled either by; assumption, combination, transfer or loss prevention activities. Insurance schemes utilise the combination method by persuading a large number of individuals to pool their risks into a large group to minimize overall risk.
However for Oshin, if the insurance industry wants to play its role in reflating the economy, certain products needs to be in place and they include credit swap insurance modules; mortgage insurance; professional indemnity insurance; directors and officers liability insurance as well as fidelity guarantee insurance.
Others are life insurance; annuity insurance; political risk insurance as well as underwriting share offers, Oshin noted.
The way forward
On the way forward, Oshin noted that insurance companies should come up with meaningful products that can support the financial system other than the more traditional products as well as continuously increase the awareness of insurance across board as campaigns should go to the grassroots, villages, schools, governments etc.
In his words, “Life insurance products have long assisted estate planning and mortgages. I see a situation where this would be further developed as there is a rebound in the economy”.
For Ogunbiyi, there are many challenges facing the operation and management of micro insurance and over the years many schemes have failed. However, adapting to innovative techniques, experience and new knowledge, many micro insurance service providers have been able to achieve sustainability and visibility in the long term.
In his words, “Given the fundamentals, the Nigerian insurance industry has a new and enormous market waiting to be explored and exploited for the attainment of relevance in economic growth and development.”
