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Preparing Nigerian Insurers for the Global Marketplace. Adeniyi Elumaro Abuja, Nigeria. April, 2008. Since 1989. Empowering People. Changing lives. Opening Thoughts. We live in a TINA world. TINA.

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slide1

Preparing Nigerian Insurers for the Global Marketplace

Adeniyi Elumaro

Abuja, Nigeria

April, 2008.

Since

1989

Empowering People. Changing lives

slide4

TINA

  • 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?
slide6

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
slide8

Outline

  • The Future Insurance/FSI Market
  • Global Insurance Trends
  • Aligning Nigerian Market and Coping with the Challenge of Transition
  • Suggestions for the Future
slide10

The future Nigerian financial market will be borderless...

  • 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
slide11

Forces of Change and the Future Market

(Implications for the Insurance Industry)

Regulation and New Capital Requirements

Financial market Reform/consolidation

Continental financial hub aspiration

Industry to be dominated by fewer insurance companies with broadband financial services capabilities/alliances to other financial institutions

Key differentiators–Talent, Capital, Underwriting Discipline,Branding, Distribution Capacity, Risk Management and Service excellence

Corruption/

Transparency Drives

Changing customer demographics and behaviour

Strong economic growth

slide12

The Future market will be radically different

Improved Competitive

Dynamics

Fewer, well capitalized operators

Insurance hub for Sub Saharan African

Technology Driven

Strong er and Leaner Regulation

Increased Insurance Penetration/Portfolio

Consolidated, Sanitized & Refocused Players

slide13

14%

12.5%

12%

11%

9%

8.5%

5.3%

4.5%

4%

1.0%

0.7%

South

Africa

Pop: 45m

South

Korea

Pop: m

USA

Pop:

250m

Nigeria

Pop:122m

Egypt

Pop:71m

Thailand

Malaysia

Life

Gen Biz

Nigeria is a virgin insurance market…

Insurance Premium's Contribution to GDP

UK

Pop:m

slide14

National Transformation has Predictive patterns--Learning From India, Malaysia

Events

India, today

India (10-20 years ago)

  • 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
  • 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%)
  • Sustained reform
  • agenda
  • Increasing
  • privatisation &
  • deregulation
  • Increased
  • stability
  • Modernisation of
  • financial system
  • Increased flow of
  • FDI
  • NRI

Nigeria, tomorrow

Nigeria Today

  • 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%)

?

slide15

A sea change is taking shape in Nigeria….

Banking

Pensions

Insurance

Micro-credit

FSI

Driven by FGN overall economic reform agenda--

NEEDS

Public/ Private Partnerships

Privatization /Commercialization

Telecoms

Petroleum

Power

NON-FSI

Started/incomplete

Reform Philosophy

Near complete

About to Start

socio economic and cultural change is slowly taking roots
Socio-Economic and Cultural change is slowly taking roots...

Law Enforcement

Poverty Alleviation

Consumer Credit

National Identity Management System

This new system seeks to harmonise all existing identity systems into one key, secure national database

Building integrity infrastructure

I C P C, EFCC

Legal & Civil Service Reform

National

Re-Orientation

there is a relationship between insurance penetration and per capital income
There is a relationship between insurance penetration and per capital income

Premiums per GDP, life and non-life, 2003

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

12%

Most Nigerians cannot buy insurance products because they simply don’t have the cash

10%

United States

8%

Germany

6%

Malaysia

Spain

Czech Republic

4%

China

2%

India

0%

0.1

1

10

100

GDP per capita, 1000 USD, 2003

Source: Swiss Re Economic Research & Consulting

there is a relationship between insurance penetration and per capital income18
There is a relationship between insurance penetration and per capital income

Example: Life insurance penetration increases with affluence

Insurance premium

as % GDP

Three avenues for growth

Threshold for insurance pick-up

Addition of new customers

Existing customers buy more

Extension to new geographies

1

2

INDIA

3

100

1,000

10,000

100,000

GDP per capita in USD (log scale)

  • PPP adjusted GDP per capita higher by a factor of ~5-6; lower income categories not shown
  • Source: Swiss Re; NCAER
slide19

Insurance and Economic Development

are linked

Ageing population

Economic development / increasing income

Young population

Large conglomerates

New start-ups

United States

Public-Private

Partnerships

Emergence of a

middle-income

class

FDI/Capital outflow

Reform of old (state-

owned) companies

Singapore

Increasing car/home

ownership

Poland

Increasing role of

services

Rapid industrialisation

Corporate (re)insurance

Brazil

Growth of personal lines

Free market systems

China

Credit & Surety

FDI/capital inflow

Vietnam

Motor/property takes off

Increasing liability business

Protection of start-ups

Wealth management

Focus on commercial lines

Savings products

(with capital guarantee

Protection products

Insurance market development / increasing penetration

slide20

Financial market segments compete

for PFA’s

Non- financial assets

Personal financial assets

=

Cash (local & foreign currency)

+

Bank deposits

+

+

Stocks & shares (direct ownership)

+

+

Mutual funds/investment certificates

+

Life insurance (reserves)

+

Corporate pensions

slide21

10

Global Insurance Trends

slide22

1

The Golden Opportunity

slide23

2.

Building the Glass Firm

slide24

3

The Human Touch

slide25

4.

Living the Rules

slide26

5.

Migration from Grey & Boring to Open and Innovative

slide27

6.

Dynamic Capital Management

slide28

7.

A new world of M & A

slide29

8.

The Growth of Synthetic Products

slide30

9.

Death of Inflation, falling bond yeild

slide31

10.

Coping with the Growing size of Risks---Insurance Companies that Aren’t

slide33

Danger

Ahead

Strong financial markets do not happen by themselves

slide34

We must rebuild the legal and regulatory system for insurance

slide35

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
slide36

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

slide37

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
fsi market regulatory reform
FSI Market/Regulatory Reform

Industry Wide Vision

Deposit

Insurance

2

Health

Insurance

1

Agency

Sector

6

Brokers

Sector

5

Life

Sub

Sector

3

Non Life

Sub

Sector

4

Insurance industry Wide Implementation Plan

fsi market regulatory reform39

Industry Wide Vision

FS Wide Regulation

Sector

1

Sector

5

Sector

2

Sector

3

Sector

4

FS Wide Implementation Plan

FSI Market/Regulatory Reform
slide40

NAICOM must be ready to regulate in a

technology driven environment

Technology Driven Regulatory Framework

NAICOM

E-Payment

E-Regulation

E-Supervision

Interactive

Website

E-Compliance

E-Correspon-

dence

Insurance Industry

slide41

We must admit new talent and fundamentally reshape the insurance skills development system

slide42

We must grow capacity, broaden the business model and develop better products

we must broaden the business model into r mgt financial protection and wealth management

Estate

planning

Retirement

annuities

Risk Management Financial Planning

Advice

Asset

management

Asset

accumulation

Investments &

Savings

Consumer credit

Mortgages

Credit cards

Life protection

Sourced bank

products

Asset protection

Auto, home, property, liability

Life Stages

We must broaden the business model…into R MgtFinancial protection and wealth management
bancassurance is an avenue for third party distribution and can be approached in three ways
Bancassurance is an avenue for third party distribution and can be approached in three ways

Capital intensive

Potential conflict

of

interest

(capital allocation)

Full Ownership

Bancassurance

NO

  • Co-ownership of a
  • separate entity to
  • cross sell products:
  • Alignment of interests
  • Governance is key

Joint Ventures

YES

  • Capital allocation similar to

proprietary distribution

  • Allocation of profits

between manufacturer

and distributor is key

Distribution

Agreements

YES

what is required action on many fronts by all stakeholders

Distribution

Under

writing

12

8

4

0

0

1

2

3

100

10,000

1,000

100,000

Operations

Investment

management

WHAT IS REQUIREDAction On Many Fronts By All Stakeholders

Players

Regulator

Customer awareness

Regulations

  • Increase customer awareness
  • Product design and product coverage
  • Extend reach
  • Consistency & stability
  • Support information
  • Consumer awareness

Government

Industry bodies

Infrastructure

  • Property rights
  • Information
  • Increase customer awareness
  • Information