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Preparing Nigerian Insurers for the Global Marketplace
Since1989
April, 2008. Empowering People. Changing lives
Adeniyi Elumaro
Abuja, Nigeria
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Opening Thoughts
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We live in a TINA world
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We live in a TINA world. No responsible nation has a choice. Capitalism stands alone as the only feasible way to organise a modern economy.
Hoewever, the hour of capitalism greatest triumph is also its hour of crises
Yet 4 billion out of the world’s 5 billion pple are excluded by the captalist system
Why have third world countries and former communist economies not been able to replicate the success of capitalism in the West?
TINA
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National posterity is created not inherited
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National posterity is created,not inherited…(Source: Michael Porter)
Capacity of industry to innovate and upgrade
Existence of world class institutions/competition.
Innovation to convert selective disadvantage into competitive advantage
Creation and assimilation of knowledge
Availability of information /Healthy Competition
Proactivity/Adaptability
Access to appropriate skills
Combination of best managerial processes, strategy and systems
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Insurance is the DNA of capitalism
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Outline
The Future Insurance/FSI Market
Global Insurance Trends
Aligning Nigerian Market and Coping with the Challenge of Transition
Suggestions for the Future
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The Future
Insurance/FSI Market
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A global market, without frontiers or captive markets:
Geographical, sectoral and regulatory boundaries will be less important
Predominance of global players with global reputation and scale and local players with global alliances
Top 10 financial institutions will control over 90% of industry assets
Customers with more financial sophistication, will demand more ..and will have access to all information and to all products and services
Technology/Cost driven business models and service delivery infrastructures
Value and not transaction providers
In a continuous process of change
The future Nigerian financial market will be borderless...
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Forces of Change and the Future Market
(Implications for the Insurance Industry)
Forces of Change and the Future Market
(Implications for the Insurance Industry)
Industry to be dominated by fewer Industry to be dominated by fewer insurance companies with broadband insurance companies with broadband financial services capabilities/alliances financial services capabilities/alliances
to other financial institutionsto other financial institutionsKey differentiators–Talent, Capital, Key differentiators–Talent, Capital, Underwriting Discipline,Branding, Underwriting Discipline,Branding,
Distribution Capacity, Risk Management Distribution Capacity, Risk Management and Service excellenceand Service excellence
Financial market Financial market Reform/consolidatReform/consolidat
ion ion
Regulation and Regulation and New Capital New Capital
RequirementsRequirements
Strong Strong economic economic growthgrowth
Corruption/Corruption/Transparency Transparency
DrivesDrives
Changing Changing customer customer
demographics and demographics and behaviourbehaviour
Continental Continental financial hub financial hub
aspirationaspiration
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The Future market will be radically different
Insurance hub for Insurance hub for Sub Saharan AfricanSub Saharan African
Increased Insurance Increased Insurance Penetration/PortfolioPenetration/Portfolio
Str
on
g e
r
Str
on
g e
r
an
d Lean
er
an
d Lean
er
Reg
ula
tion
Reg
ula
tion
Tech
nolo
gy
Tech
nolo
gy
Dri
ven
Dri
ven
Consolidated, Consolidated, Sanitized & Sanitized &
Refocused PlayersRefocused Players
Improved Improved Competitive Competitive
DynamicsDynamics
Fewer, well Fewer, well capitalized operatorscapitalized operators
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Nigeria is a virgin insurance market…
Insurance Premium's Contribution to GDP
UK
Pop:m
9%
Egypt
Pop:71m
1.0%0.7%
South
Korea
Pop: m
Nigeria
Pop:122m
12%
14%
USA
Pop:
250m
11%
8.5%
12.5%
South
Africa
Pop: 45m
4.5%
5.3%
4%
Malaysia Thailand
Gen BizLife
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India (10-20 years ago)India (10-20 years ago) EventsEvents India, todayIndia, today
Nigeria TodayNigeria Today Nigeria, tomorrowNigeria, tomorrow
National Transformation has Predictive patterns--Learning From
India, Malaysia• Large Population (>1Bn) • Multi ethnic/religious• Average Literacy Rate (59%)• Absence of National ID• Emerging middle class?• Inadequate infrastructure• Inequality in living standards• Growing but sluggish economic growth (4.3%)
• Large Population (130million) • Multi ethnic/religious• Average Literacy Rate (68%)• Absence of National ID• Emerging middle class?• Inadequate infrastructure• Inequality in living standards• Growing but sluggish economic growth (c. 5%)
• Sustained reform agenda
• Increasing privatisation & deregulation
• Increased stability
• Modernisation of financial system
•Increased flow of FDI •NRI
• Strong and sustained economic growth• Developing infrastructural base (technology, power, payment system, credit bureau, education)• Rapid middle class expansion• Huge retail banking population/ entrenched consumer banking practices•Presence of international financial institutions
?
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A sea change is taking shape in Nigeria….
Driven by FGN overall Driven by FGN overall
economic reform agenda--economic reform agenda--
NEEDSNEEDS
PensionsPensionsBanking Banking
PetroleumPetroleumTelecomsTelecoms
InsuranceInsuranceMicro-Micro-creditcredit
PowerPower
Near Near completecomplete
Started/Started/incompleteincomplete About to StartAbout to Start
FSI
NO
N-F
SI
Priv
atiza
tiP
rivatiza
tion
on
/C
om
merc
/Com
merc
ializ
atio
nia
lizatio
n Pu
blic/
P
ub
lic/
P
rivate
P
rivate
P
art
ners
hP
art
ners
hip
sip
s
Reform Reform PhilosophyPhilosophy
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Socio-Economic and Cultural change is slowly taking
roots...
National Identity Management SystemNational Identity Management SystemThis new system seeks to harmonise all This new system seeks to harmonise all existing identity systems into one key, existing identity systems into one key,
secure national databasesecure national database
Law EnforcementLaw Enforcement Consumer Consumer CreditCredit
National National Re-OrientationRe-Orientation
Legal & Civil Legal & Civil Service ReformService Reform
Building integrity Building integrity infrastructureinfrastructureI C P C, EFCCI C P C, EFCC
Poverty Poverty AlleviationAlleviation
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United States
Germany
Spain
Czech Republic
Malaysia
China
India
10%
8%
6%
4%
2%
0%
12%
0.1 1 10 100
Premiums per GDP, life and non-life, 2003
GDP per capita, 1000 USD, 2003
Source: Swiss Re Economic Research & Consulting
Step change in demand function. When GDP per capita gets close to USD 10,000, insurance penetration rises to a level above 4% with a steep slope
Most Nigerians cannot buy insurance products
because they simply don’t
have the cash
There is a relationship between insurance penetration and per capital
income
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Example: Life insurance penetration increases with affluence
0
2
4
6
8
10
12
0 1 2 31,000 10,000 100,000100
(1) PPP adjusted GDP per capita higher by a factor of ~5-6; lower income categories not shownSource: Swiss Re; NCAER
Insurance premium as % GDP
GDP per capita in USD (log scale)
Threshold for insurance pick-up
Three avenues for growth
Addition of new customers
Existing customers buy more
Extension to new geographies
1
2
3INDIA
There is a relationship between insurance penetration and per capital
income
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China
Vietnam
Brazil
Poland
Singapore
United States
Ageing population
Large conglomerates
FDI/Capital outflow
Corporate (re)insurance
Reform of old (state-owned) companies
FDI/capital inflow
New start-upsYoung population
Emergence of a middle-income class
Increasing car/homeownership
Rapid industrialisation
Motor/property takes off
Protection of start-ups
Protection productsSavings products(with capital guarantee
Focus on commercial lines
Growth of personal lines
Credit & Surety
Increasing liability business
Wealth management
Increasing role ofservices
Insurance market development / increasing penetration
Economic development / increasing income
Public-PrivatePartnerships
Insurance and Economic Development are linked
Free market systems
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Financial market segments compete for PFA’s
Personal financial assets
Bank deposits
Life insurance (reserves)
Stocks & shares (direct ownership)
Cash (local & foreign currency)
Mutual funds/investment certificates
Corporate pensions
+
+
+
+
+
=
Non- financial assets
+
+
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10 Global Insurance
Trends
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1The Golden Opportunity
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2.Building the Glass Firm
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3The Human Touch
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4.Living the Rules
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5.Migration from Grey &
Boring to Open and Innovative
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6.Dynamic Capital
Management
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7.A new world of M & A
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8.The Growth of Synthetic
Products
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9.Death of Inflation, falling
bond yeild
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10.Coping with the Growing size of Risks---Insurance Companies that Aren’t
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Aligning Nigeria, The Challenge of Transition and Suggestions for the
Future
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Strong financial markets do not happen by
themselves
DangerAhead
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“We must rebuild the legal and regulatory system for
insurance
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Current market structure can only destroy value…
Cannot deliver the right price
Overstretches regulatory capacity
Entrenches surface underwriting/bad ethics
Cannot develop the untapped retail market
Lack capacity to capture local content of Oil & Gas industry, Carbotage law and other invisibles currently posted offshore
Is competitively disadvantaged
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Regular insurance market cycles will not play out in Nigeria…
Exit Protection
Weak Property Rights
Weak Judicial institutions/culture
Powerful market institutions
Regulatory revolution/correction is the only hope for change
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Without an appropiate intervention the insurance market may loose out on key
growth opportunities…
Pensions now belongs to PFA’s/PFC’s
Health insurance now belongs to HMO’s
Travel insurance taken offshore by Shengen
Banks are leading in bonds
Motor insurance heading for “Captive cells”
Plans underway to encroach into WC/GPA
Deposit insurance belongs to NDIC
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FSI Market/Regulatory Reform
Health Insurance
1
Deposit Insurance
2
Life Sub
Sector3
Non LifeSub
Sector4
BrokersSector
5
Industry Wide Vision
Insurance industry Wide Implementation Plan
AgencySector
6
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FSI Market/Regulatory Reform
Sector1
Sector2
Sector3
Sector4
Sector5
Industry Wide Vision
FS Wide Regulation
FS Wide Implementation Plan
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NAICOM must be ready to regulate in a technology driven environment
Technology Driven Regulatory Framework
NAICOM
Insurance Industry
E-Payment E-RegulationE-SupervisionInteractive
WebsiteE-Compliance
E-Correspon-dence
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We must admit new talent and fundamentally reshape
the insurance skills development system
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“We must grow capacity, broaden the business
model and develop better products
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We must broaden the business model…into R Mgt
Financial protection and wealth management
Risk
Man
agem
ent
Fin
anci
al P
lannin
g
Life Stages
MortgagesCredit cardsLife protection
Auto, home, property, liabilityAsset protection
Retirementannuities
Asset management
Assetaccumulation
Investments & Savings Consumer credit
Sourced bankproducts
Estateplanning
Advice
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We must overhaul the local insurance value chain
distribute more creatively
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Bancassurance is an avenue for third party distribution and can be approached in three
ways
Full Ownership
Bancassurance
Capital intensivePotential conflict
of interest
(capital allocation)
NO
Joint Ventures
Distribution Agreements
Co-ownership of a separate entity to cross sell products:
Alignment of interestsGovernance is key
Capital allocation similar to proprietary distribution
Allocation of profits between manufacturer and distributor is key
YES
YES
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WHAT IS REQUIREDAction On Many Fronts By All
Stakeholders
Customer awareness
Underwriting
Distribution
Investmentmanagement
Operations
Infrastructure
Regulations
0
4
8
12
0 1 2 31,00010,000 100,000100
Regulator
Government
Players
Industry bodies
• Consistency & stability
• Support information
• Consumer awareness
• Property rights
• Information
• Increase customer awareness
• Product design and product coverage
• Extend reach
• Increase customer awareness
• Information