“It is possible to grow that sector by 16 [to] 20 per cent. When we look at Nigeria, with an insurance penetration rate of less than 10 per cent, and we look at the growing middle class that are able to afford insurance, then we were encouraged that that sector is one in which the sector can grow significantly,” AGH Capital analyst Oyebola Farinde told CNBC Africa.
“We’ve also seen the regulators come to the party, because they’ve also helped the insurance companies now make their books a lot tidier than they used to be. We find the situation in which provisions for bad debt has been reduced with the no-premium no-cover policy.”
In addition to the regulatory input, a number of companies have begun to report company performance and results according to International Financial Reporting Standards. This significantly increases company credibility on a local and international level.
“You find that now companies are beginning to release their results within reasonable time. Those kinds of things you did not see previously,” Farinde explained.
“When you have a sector that is being tidied up in this manner, ultimately you find investment and investors going into that sector, and that is where we’re beginning to see it.”
South African financial services and insurance group [DATA SLM:Sanlam] has recently ventured into Nigeria’s insurance territory, indicating a robust market for foreign investment. Farinde added that Sanlam’s venture into Nigeria will also improve the country’s business reputation and processes.
“They’ll be partnering or taking over companies where there’s some degree of a track record, the management knows what it’s doing, and they can leverage on the existing experience that the company has. They can leverage on the customer base and they can start from a base that is not zero,” he said.
Local companies are also taking advantage of the untapped insurance market, such as the recent partnership between Nigerian financial company Asset and Resource Management and CrystaLife Assurance.
“We see a lot of activity, which tells you that that space is one we should look out for, whether you’re a local investor or a foreign player looking to go into Nigeria,” said Farinde.