Guardian

THE initial drive by underwriting firms in Nigeria to expand and exploit opportunities in the African insurance market may  have been truncated  due to assessed  unfriendly business environment which has been prompting some of the companies to review their off-shore operations.

Indeed, the exodus from some of these African countries has been at the behest of their  shareholders who considered their off-shore operations  not being profitable enough for their respective  level of investments.

The Guardian gathered that some of the policy regulations and guidelines initiated by some of the host countries were not in favour of foreign underwriters to operate profitably to sustain their operations.

Following the conclusion of recapitalization and reconciliation exercise in the insurance industry in 2005, the industry capitalization exceeded over N200 billion, the underwriting firms had surplus fund in which to expand operations to the continent for profit.

The Chief Executive of one of the subsidiary firms told The Guardian: “The initial tempo for opening subsidiaries has declined, because the regulations and guidelines that came out from the host governments was not friendly as some of the conditions was not acceptable if one is to run profitably. Besides, the cost of acquiring businesses was rising daily.

According to him, “insurance companies worldwide are refocusing their internal operations, with attention on reducing costs and improving the efficiency of their business processes through transforming policy administration to serve the customer better. If you take into consideration that we were not making gains since we begun,  it was only reasonable to relocate our operations.”

The Chief Executive of an underwriting firm said: “The idea of off-shore branches was not well thought out in the first instance. “In most of the African countries, majority of the people are poor and are not literate. This translates into very low disposable income and lack of awareness. With poor public infrastructure, high employment and poor social welfare system, the result is that majority of the people are hardly able to satisfy their basic needs of food, clothing, housing and education for the children.”

According to him: “With the above scenario, insurance can hardly be a priority. Insurance as a risk management tool, ideally, should provide first level security but under the above situation, coupled with the cultural beliefs, insurance is very much at the bottom of the pyramid of needs. This is primarily the major cause of the low insurance penetration in the continent.”

However, the policy of the National Insurance Commission (NAICOM) through the Nigeria Insurance Market Development and Restructuring Initiative (MDRI) was designed to create about 250,000 new jobs, made it mandatory that for an insurance company to open a subsidiary off-shore, such underwriting entity must open four branch offices in Nigeria before NAICOM would grant approval to do so, which in essence affects off-shore operations.

A source at the commission said “The total branches of Nigerian Insurance Companies in other parts of Africa have grown from 29 to 37. The point we are making is that this country has a population of over 150 million and there are huge market potentials in this country yet to be exploited,  we have to develop this local market to deepen insurance penetration in this country.”