Like the 2004 banking sector consolidation that saw the emergence of mega banks, the June 2020 deadline for insurance sector recapitalization may bring about six strong indigenous insurers that would compete favourably with their foreign counterparts.Besides, the credibility of the industry in the eyes of international partners, domestic commercial customers and crucially, retail customers, enjoyed by banks since then, would be extended to the beleaguered sector.
Experts, who gave insight into the unfolding events in the insurance sector, recalled that the number of customers who entrusted their accounts to banks grew enormously after 2004, which expanded the measurable money base, saying that it is a strong precedent for something similar to develop in the insurance industry, starting in 2020.
The Head of Coronation Research, Guy Czartoryski, told The Guardian that the first and essential thing about the industry presently, is that the building blocks for the transformation are in place.Czartoryski explained that it seems the reform will reduce the number of insurance companies in Nigeria and within that number, it is possible to identify a group of six-to-eight largely foreign-owned insurance companies and a group of six-to-eight wholly indigenous insurance companies, followed by a number of small companies.
“So, there is likely to be an even split between foreign and indigenous ownership among the biggest companies. This bodes well for the competitive aspects of the industry going forward and for the relationship between the industry and the regulators,” he said.Raising capital, he said, costs money, and therefore, there has to be a return on that money, adding that the re-capitalised industry of 2020, needs to achieve scale, if it is to make the kind of profits, which strategic investors and stock market investors demand.
“That scale can only be reached with rapid expansion, and the industry is likely to work together, and with distribution partners and regulators, to go for growth,” he said.“There are 38 million Bank Verification Numbers, so the ability of banks to distribute insurance – bancassurance, is not in doubt. There are over 170 million ringing mobile phone lines, which suggests another potent distribution method.
“Number-plate recognition technology, using real-time referencing with insurance records, is already being used in some parts of the country. So, the data sets, hardware and technology for rapid development are already there.“The technological platforms for managing high numbers of customers have been tried and tested in other markets and are available for deployment here. In other words, the systems exist to turn Nigerian insurance companies, which today are accustomed to managing thousands of customer account into companies managing millions of accounts.
“There is micro-insurance, whereby low-cost insurance is distributed in cooperation with state institutions, development finance institutions, foundations and other agencies. Micro-insurance can play a key role in familiarising a market with insurance products and pave the way for the expansion of insurance overall,” he said.
According to him, while different countries roll out insurance in different ways, it is a matter of which combination of these assets and initiatives will be deployed in Nigeria.But the Director at Coronation Merchant Bank, Abiodun Sanusi, pointed out that in insurance consolidation, there are two things- either the insurance companies raise capital through right issues or through mergers and acquisitions route.
“We are also going to see flow on offerings like Initial Public Offerings in the capital market if the insurance industry and investment banks are able to communicate the equity story, because there is enormous potential in the sector.“So, the insurance consolidation that we are going to see is going to have a positive impact on the capital market. When there is consolidation, we would have bigger players and investors would be more confident to invest. As we speak, there are lots of pension funds that have not been invested in the insurance sector.
“Coronation Merchant Bank is an investment bank and one of our key service offerings is investment banking. We offer both capital leasing services and mergers and acquisitions.“We are seeing it as an opportunity to awaken a sector that has been flat over the years, so looking at that concept, we see it as an immense advantage and we are already positioning to advice a lot of insurance companies this time, guiding them either through acquisition and merger or takeover.
“We have started working with a lot of insurance companies in the industry, giving them our best advisory banking services so that at the time this consultation happens and the deadline closes by June 2020, we would be well positioned to be the zenith investment bank that would raise the desired equity capital for them to further meet their investment needs and scale up their operations,” he said.
