Historical Background of Modern Insurance Stocks Business in Nigeria
According to Hamadu and Mojekwu (2010), historically, insurance stocks business behavior in Nigeria can be traced to the actions of British merchants in 1874. These British merchants commenced their insurance business activities as agents for insurance companies in Britain, the major area of business being marine insurance. These agents operating in Nigeria packaged and organized insurance covers for imported and exported products. The modern insurance business was introduced into West Africa during the early 20th century by European traders to provide financial and economic protection for their business (Ngwuta, 2007). All underwriting was done at the metropolitan head office while the headquarters office was in Europe. Subsequently, local agents were appointed to represent their interest in the country. The first branch office in Nigeria was the Royal Exchange Assurance in 1921, later followed by other British companies. There was an initial slow pace of the growth of the insurance industry in the country, particularly between 1921 and 1949. This has been traced to adverse effect of the World War II on trading activities both in United Kingdom and Nigeria. As soon as the war ended, business activities gradually picked up again, and insurance industry in Nigeria began to record remarkable improvement in growth (NICON, 1994). It was not until 1958 that the first indigenous insurance company, the African Insurance Company Limited, was established. At independence, only four (4) of the then twenty five (25) firms in existence were indigenous. Following this development, more insurance companies were established in the country.
According to NAICOM (2011), the first major step at regulating the activities of Insurance stock business in Nigeria was the report of J.C. Obande Commission of 1961, which resulted in the establishment of Department of Insurance in the Federal Ministry of Trade and which was later transferred to the Ministry of Finance. The report also led to the enactment of Insurance Companies Act 1961, which came into effect on 4th May, 1967. The 1961 Act focused mainly on the activities of direct insurers, made provisions for registration and record keeping. Furthermore, in 1968, Insurance Companies regulations was put in place to facilitate the implementation of Act No 58 of 1961 which then classified insurance business into different classes for registration purpose and relevant forms for record keeping. The promulgation of the 1968 companies Act requiring the incorporation of indigenous companies also facilitated the establishment of more insurance companies in the country (Kantudu and Tanko, 2008). The 1968 Act stipulated a paltry N50,000 and N100,000 for life insurance companies and composite insurance companies respectively. Indigenous Nigerian insurers such as NICON which was established in 1969 later followed (Agbakoba, 2010).
In addition, the Insurance Decree No 59 of 1976 was enacted putting together the provisions of the various laws. The 1976 Decree among others made the following provision; Condition for authorization of Insurers, Mode of operation, Amalgamation and Transfer, Administration and Enforcement and Penalties. The Insurance Decree, No 59 of 1976 constituted the first All-embracing Law for the regulation and Supervision of Insurance business in Nigeria. By 1976 the number of indigenous companies had far surpassed that of the foreign companies. Indigenous Nigerian Reinsurance Corporation was then established in 1977 (Agbakoba, 2010). Moreover, the National Insurance Commission (NAICOM) was established in 1997, with the responsibility of regulating and supervising insurance business in Nigeria. It replaced the previous regulatory organ – the Nigerian Insurance Supervisory Board. Prior to 1992, the Federal Ministry of Finance licensed and supervised insurance companies. Historically, in 1968, concern was given to life Insurance business and it led to the enactment of Decree 40 of 1988 which made provisions among others for Assignment of Life Insurance Policy, named beneficiary on Life Insurance Policy document. The Agricultural Insurance Scheme was established on 15th of November, 1987. The implementation of the Scheme was initially vested in the Nigerian Agricultural Insurance Company Limited, which was later incorporated in June, 1988 but later turned into a Corporation in 1993 by the enabling Act 37 of 1993. Nigerian Agricultural Insurance Corporation is therefore a wholly-owned Federal Government of Nigeria insurance company set up specifically to provide Agricultural risks insurance cover to Nigerian farmers.
The Pension Reform Act 2004 established the National Pension Commission (PenCom) as the body to regulate, supervise and ensure the effective administration of pension matters in Nigeria. The pension reform programme is governed by the key principles of sustainability, safety and security of benefits, transparency, accountability, equity, flexibility, inclusivity, uniformity and practicability. The recent Pension Act repeals the Pension Reform Act No.2, 2004 and enacts the Pension Reform Act, 2014 to continue to govern and regulate the administration of Uniform Contributory Pension Scheme for both the public and private sectors in Nigeria. The recent Act was the Nigerian Insurance Commission Act, 2003, which recapitalized the insurance companies in the country. The Objective of insurance sector reforms is achieving a consolidation that will produce companies capable of meeting claims obligations and compete at the continental and global levels. The Insurance Act 2003 required the insurance companies to increase their capital bases and the companies were given February, 2004 as a compliance month. After the recapitalization period the companies were reduced from 117 to 103. On September 5, 2005 Insurance companies were also required to increase their capital bases and they were also given a maximum period of 18 months to comply with the 2005 recapitalization requirements (From 5th September, 2005 to 28th February, 2007). Following the completion of the 2005/6 recapitalization exercise, which also involved quite a number of consolidations, the number of insurance companies dropped from 103 to 49 as at 31st December, 2007.
According to Ngwuta (2007), indigenous Nigerian insurance companies were not profoundly entrepreneurial at the earlier stage because of lack of trained manpower, intense competition from superior foreign companies and lack of adequate and sufficient capital base on the part of indigenous insurance companies, poor infrastructural development and poverty of the Nigerian capital market. Therefore, early indigenous Nigerian insurance companies were owned and operated by regional governments, and the patronage of these insurance companies was mainly from the regional governments that owned them. The relatively good performance of these regional insurance companies, in addition to the liberalized regime of governments of the day pertaining to regulations in the industry, resulted in the proliferation of insurance companies. This proliferation tasked insurance companies to design and implement efficient and effective marketing strategies, in addition to other strategies, in order to achieve set organizational goals and objectives. Presently, the Nigerian insurance market consists of the buyers of insurance and the sellers together with the intermediaries (agents) who bring the two together. In addition, there are also the regulators, representative bodies or organizations, consultants and technical advisers which are part and parcel of the market (NAICOM, 2012). The buyers of insurance can be segmented as follows: Individuals and families, Governments (federal, state and local Government) and their agencies, parastatals, multinationals, conglomerates, manufacturing industrial concerns, small and medium scale industries, banking industry, health institutions, tourist and hospitality industries, hotels, transport industry, other corporate bodies, educational institutions, oil and energy industry. For marketing purposes the buyers can further be segmented to suit the strategy of the insurer, or the insurance agent.
The intermediaries are mainly insurance brokers and insurance agents. Nigerian insurance market has been described as brokers market because presently brokers control over 90% of the premium income, leaving less than 10% for insurance agents and even direct marketing channel by insurers (Daniel, 2014). The banking industry on the other hand has become a formidable channel for distributing insurance services not necessarily as intermediaries, but by facilitating a form of direct marketing by insurers.