BMI View: In spite of low penetration levels, Nigeria's life and non-life insurance segments are set to grow at high single-digit to double-digit rates through the next years. The country's favourable economic prospects, leading to rising household spending, and rapidly growing population will produce a strong boost in demand for life and non-life products, which will attract more foreign insurance companies and consequently increase the level of competitiveness within both markets . Importantly, however, investors should be mindful of potential challenges which reside mainly in currency movements due to falling oil prices as well as national security issues.
Accounting for roughly 34% of total written insurance premiums, and a penetration rate of 0.1% (ie, life premiums as a percentage of GDP), life insurance is the smaller and relatively more underdeveloped segment of the overall insurance sector. Factors such as low income levels, customers' limited awareness of the benefits of life solutions, and a lack of transparency of the operating practices of some operators have been underlying the segment's sluggish development. Moreover, life insurance providers have had to overcome the lack of trust among the Nigerian consumers, which has hitherto been preventing them from entering into long-term insurance contracts, as well as a low average life expectancy among the Nigerian population - hampering potential demand for traditional life products, such as retirement and life savings products. However, with an annual average growth rate of 13.4% in the coming years, the life market is set to provide significant opportunities for ongoing investment. First and foremost, while the Nigerian 65+ population is insufficiently large to provide sustainable demand for life insurance products, long-term premium growth will be increasingly more carried by the country's growing professional and middle classes. Insurers may target these more affluent groups with micro-insurance products, such as short-term life coverage. Moreover, in the next years an increasingly larger share of the population should become more aware of the benefits of life insurance products, and private sector companies will increasingly purchase group-based life solutions.
Accounting for 70% of total insurance premiums written in 2015, non-life insurance is considerably larger than the life segment. However, with penetration rates of under 0.2%, the non-life market is underdeveloped to a similar extent as the life business. Nevertheless, with annual premium growth of over 8% through to 2019, non-life insurance also offers lucrative opportunities for domestic and foreign investors. These opportunities will reside especially within the property and motor insurance lines, which will exhibit high single-digit growth rates owing to the country's economic growth manifesting itself in rising disposable income and increased vehicle ownership. In particular, Nigeria's changing demographic profile will provide an additional boost to the segment's growth, as the country's population is set to increase by more than 2% annually, reaching 204.6mn by 2019. At this time, approximately half of the population will be younger than 25 years. This means that there will be an important change in overall consumer spending, which will transfer to clear increases in demand for non-life solutions across all major product lines. These market developments will likely attract a growing number of foreign investors and consequently lead to more consolidation. Furthermore, we also expect to see foreign investors' increasing tendency to invest in risky infrastructure, energy and agricultural projects transfer to more demand for non-life reinsurance by local and multinational insurers, to transfer the higher levels of risk. Overall, although Nigeria's non-life insurance market offers clear long-term opportunities for both domestic and foreign players to grow their market presence, we also note that they should be mindful of short-term challenges due to currency fluctuations as well as the deterioration of the security situation in the north of the country, which could potentially destabilise the country's business environment.
The Lagos State Council on Health is launching a new campaign to promote universal health care coverage via a comprehensive and flexible health insurance scheme.
Liberty, which currently offers health insurance via Total Health Trust, plans to expand in Nigeria to offer a greater range of products including asset management - it aims to be in the top ten insurers in Nigeria by 2020.
Key BMI Forecasts
Life premiums should decrease by 12.9% in 2015 to USD0.43bn.
Non-life premiums are expected to narrow by 18.5% to USD1.1bn.
Within this sub-total, motor vehicle insurance premiums should contract by 17.3% to USD310mn.
Property insurance premiums are anticipated to fall by 14.3% to USD199.9mn.