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Copyright © 2008 Accenture All Rights Reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture. 7 April, 2008 Transformation and Insurance Growth in Nigeria Omobola Johnson Country Managing Director, Accenture Nigeria
2 Copyright © 2008 Accenture All Rights Reserved. A thriving insurance sector is not only the result of an efficient financial services sector but is also an important aspect of a healthy modern economy… The insurance sector promotes long-term savings, that support sustainable long-term development: Create long-term large investments for infrastructure development Generate funds to support a deep mortgage industry Provides a safety net to government, rural and urban enterprises and productive individuals Insurance companies are typically the biggest investors in long- gestation infrastructure development projects in all developed and aspiring nations
3 Copyright © 2008 Accenture All Rights Reserved. The Nigerian insurance industry is still underperforming its potential and remains at a very under-developed stage… Insurance Density Note: 1)Insurance Density: Premium per Capita (USD) 2)Insurance Penetration: Premium Income as % of GDP Insurance Penetration Source: Swiss Re Sigma Reports (2004 – 2007) South Africa is ranked 2 nd and 32 nd compared to Nigeria’s 84 th and 86 th in terms of Insurance Penetration and Insurance Density respectively US$
4 Copyright © 2008 Accenture All Rights Reserved. Compared to the banking industry, the Nigerian insurance industry has not done very well… Total Banking Industry Deposits versus Gross Premium Income $ Billion This has become more obvious post consolidation… $ Billion Total Banking Industry Assets versus Insurance Industry Assets Banking IndustryInsurance Industry Source: Agusto Banking Reports (2004-2007), NIA Reports (2002-2006)
5 Copyright © 2008 Accenture All Rights Reserved. Regulation-driven consolidation to date has wrought some market disruptions but little economic impact in the insurance market in Nigeria… Flurry of mergers and acquisition, with very little synergy rewards Entry of some foreign players No closure of poor performing companies and very limited rationalization of players Wealthy company owners, but ‘poor’ institutions The overall objective of creating a stronger and more competitive industry is not apparent
6 Copyright © 2008 Accenture All Rights Reserved. Very poorly developed distribution channels as influence of brokers remain high, with insurance brokers possibly controlling as much as 80% of non-life business Collections remain poor, resulting in relatively high receivables Unsophisticated products offerings, mainly ‘plain vanilla’ with only a few companies creating new opportunities and exploring ways of filling existing gaps in the market Poor public perception, market is suspicious of insurance companies’ willingness to pay claims as and when due Lack of requisite skill to participate in highly specialised transactions especially in high value risk segments such as marine, aviation, oil and gas Inability to attract and retain skilled talent Low technology leverage Low investment and asset management capabilities Poor regulatory oversight And the issues that have historically limited performance in the past still persist…
7 Copyright © 2008 Accenture All Rights Reserved. The expected signs of a thriving industry and synergies from consolidation have not been realised … Expand to new markets and territories Develop new distribution channels Develop new complementary products/ broaden business lines Acquire critical mass, and benefit from economies of scale Develop new business models/ Diversify as a hedge against volatility in market Acquire new strategic business locations Acquire technology, or to add/ replace own technology Acquire skills/ management; to add/ replace team skills Enhance operational efficiency Revenue Enhancement Cost Reduction Improvements in ROCE Improvements in ROI Improvements in ROA Improvements in Productivity Business Rationale Value Expected
8 Copyright © 2008 Accenture All Rights Reserved. …..especially when compared to the banking industry consolidation…….. Larger financial capacity: ability to participate in bigger ticket transactions and ability to fund global expansion Entrance of global players: increased interest in Nigeria and response to international players and foreign investments New Products: development of new innovative products that are appealing and meet consumer needs New Channels: significant large investments in the development of alternative service delivery channels
9 Copyright © 2008 Accenture All Rights Reserved. Post regulatory consolidation, the insurance industry structure still suggests that there is a need for a transformation… Highly fragmented industry Homogenous companies High-cost distribution system Poor governance Dwindling competitiveness Under-developed channels Commoditised products …overall, there is no real source of competitive advantage for players in the industry
10 Copyright © 2008 Accenture All Rights Reserved. What should be the objectives of the Nigerian insurance industry transformation? Relevance/ Size/ Capacity of the Insurance businesses Appeal of insurance to consumers, especially the retail segment Ability to effectively compete/ partner globally Developing/ building skills Proliferation of alternative channels Development of appropriate regulatory framework In the UK, the FSA reform programme had three distinct objectives: Improve regulatory framework, reform of firms’ business models/ operating practices and protection of customers
11 Copyright © 2008 Accenture All Rights Reserved. Three possible transformation scenarios could emerge….. There are three possible forms that the transformation could evolve Insurance Industry OPTION 1 Consumer Led OPTION 3 Internally Driven OPTION 2 Externally Driven
12 Copyright © 2008 Accenture All Rights Reserved. Consumer-led transformation will be driven by more sophisticated customers … Sophisticated customers, exposed to the developed markets, demand insurance products and services which are at par with what is available in more advanced countries Customers are demanding of a more personal approach, along with a comprehensive range of banking, insurance and asset management products and services This should result in: Strong consumer control Price transparency Value-adding products Channel proliferation
13 Copyright © 2008 Accenture All Rights Reserved. Externally-driven transformation would entail the entrance of more global players… Responding to the emerging opportunities in the Nigerian insurance industry, international companies will enter the Nigerian insurance market space The typical entry strategy for the global players will be to focus on areas where the local players have been traditionally weak Focus on the retail sector Develop innovative products Develop alternative service delivery channels Pricing This should result in: Bigger companies with deeper pockets More expertise in the market place Access to larger distribution networks Ability to attract quality skills
14 Copyright © 2008 Accenture All Rights Reserved. Internally-driven transformation will require industry players to co-operate and collaborate to move the entire industry forward… It will entail the development and deployment of industry-wide infrastructure that will serve as a common operating platform for industry players Similar to Industry collaboration initiatives in the Nigerian banking industry such as InterSwitch, ATMC, Credit Reference Company But the collaboration will not compromise the ability of the insurance companies to compete effectively and aggressively. Basis for competition will be re-defined: Innovation Service quality Value Areas of possible collaboration include: Skills/ Capacity Building Claims Operations and Processing Policy management Channel development This should result in: Better competitive landscape Improved operational efficiency and productivity gains Standardisation and improved industry credibility And could trigger value-driven mergers and acquisitions With meaningful cost and revenue synergies
15 Copyright © 2008 Accenture All Rights Reserved. Insurance industry should consider... Which of these options is: Most desirable? Most likely? What should be the industry’s response to each of the options?
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