Nigeria adopted insurance sector reform as part of its economic restructuring program, which was implemented through several stages during 2004 – 2007. Reform was started in order to improve functionality in this insurance arena and aid in the acceleration of the country’s economic growth.
In this paper we will discuss these stages and, the aftermath thereof.
Reasons Behind Reform:
Contribution from the insurance sector to the country’s Gross Domestic Product (GDP) was less than one percent.
People were losing confidence in insurance companies.
Focus was essentially placed on health insurance companies, not only for reorganization in the insurance sector, but to also aid Nigeria’s health program.
Started through forced consolidation of banks.
Government had taken over two companies that were decelerating the reform program with litigation.
In 2005, insurers were forced to sharply raise their capital base; this aimed at strengthening the inefficient and weak insurance sector.
The capital base requirement were raised as follows:
150 million to 2 billion naira (17 million dollars) for life insurers.
200 million to 3 billion naira for general insurers.
350 million to 10 billion naira for re-insurers.
Within 2007, almost 49 insurance companies, most newly formed through mergers, had to be re-certified in order to operate.
The companies, NICON Insurance Plc and Nigeria Re-Insurance, raised their voice against the strategy of reform and took the government to court. However, their injunctions were proved wrong and the restructuring programs continued.
Although these two firms are privatized, the government forcibly retains substantial shares in them.
Effect of Insurance Sector Reform:
Nigeria managed to improve the efficiency in its insurance sector, and, as a result, in 2006 the American International Group (AIG), one of the biggest insurance companies around the globe, wished to enter the Nigerian market.
Last Updated on : 26th June 2013