As the coronavirus continues to wreak havoc killing hundreds of thousands of people and millions infected with the virus globally without any solution in sight, EDET UDOH highlights the effect of the pandemic on Nigerian insurance industry and the ongoing recapitalisation exercise.
Indeed, since the outbreak of Corona virus was first identified in China early this year, its effect on economic and social life of the people of the world is enormous leading to various countries introducing different measures to save life of its citizens and contain further spread of the dreaded virus. Some of the measures adopted by some countries like the United States of America, China, United Kingdom, and Italy among others include social distancing, movement restriction and total lockdown etc.
COVID-19 Effect on global, local economy
Speaking in an interview recently, the Managing Director/CEO, Universal Insurance Plc, Mr. Ben Ujuatuonu, said, its no longer a secret that the global economy as well as the local economy have been affected by this epidemic, because the world is now a global village.
He said companies are already closing down across Europe and Asia and were having financial challenge, he said, the drop in global crude oil price already has its implications on the nation’s 2020 budget that has made the federal government cut it down by N1.5 trillion. The foreign loans meant to augment the budget, he said, might not be coming anytime soon, meaning that, the country will struggle to implement its budget, saying, insurance industry is not isolated from it.
Effect of COVID-19 on Nigerian Insurance industry
It has been discovered that insurance companies are currently battling the ravaging scourge of corona virus pandemic with their physical and financial energy to ensure the containment of its spread, putting issue of recapitalization behind, at least for now.
Speaking on the effect of COVID-19 lockdown on insurance industry in a telephone interview with the Blueprint in Lagos, the Managing Director/Chief Executive Officer, Law Union & Rock Insurance Plc, Mr. Ademayowa Adeduro, said the effect of the lockdown on insurance industry is enormous.
He explained that the lockdown is gradually taking its tolls on the peoples’ economy, adding that the effect has seriously affecting their financials and purchasing power which might affect their decision making.
Mr. Ademayowa posited that if the lockdown is allowed to last more than necessary, policyholders who always consider insurance as the last option on their scale of preference, might have no option than to completely forget about payment of insurance premium since they will be thinking of how to take care of their basic needs.
He said with the lockdown leading to closure of companies, that when the order is lifted it will be difficult for those companies to pay their insurance premium as they will be thinking of how to get back on track.
Mr. Ademoyowa said with many people dying all over the world as a result of the virus, life insurance companies will face the challenges of paying claims arising from the deaths of policyholders.
He said with the reduction of Nigeria’s 2020 budget by about N1.5 trillion from N10.59 trillion as a result of the fall in global crude oil price occasioned by COVID-19, the insurance premium of the various Ministries, Departments and Agencies (MDAs) including that of the Federal Government accruable to insurance industry will reduce.
“With companies closing down globally and having financial challenges, it will be difficult to get Foreign Direct Investment (FDI) into the Nigerian insurance industry. Companies that wanted to invest in Nigeria before now, are, by themselves needing financial bailout. So, the recapitalisation exercise is going to be tough. Even, if the investors are to come, the closure of the two international airports will prevent their entry, at least for now,” Mr. Ujuatuonu said.
The other option, he said, is to look into the local market for funding, but that the reality is; most of these local investors might not have that financial muscle to invest now, if the virus continues to spread.
Life insurance companies most affected
On the other hand, Actuarial Scientist, Mr. Pius Apere said, there is no direct impact of the epidemic on the insurance industry recapitalisation exercise, as most of the foreign direct investment deals into the Nigerian insurance industry must have been concluded by relevant parties before the virus outbreak.
However, he felt the outbreak would be more felt by life insurance companies who have sold life and travel insurance covers to policyholders, adding that, they are expected to witness huge claims emanating from death as well as flight cancellations.
Crash of global crude oil price
Managing Director/CEO, African Alliance Insurance, Mrs. Funmi Omo, said: “Naturally, the slump in global crude oil, world recession (technically), economic meltdown and interest rate crash will result in low drive for investments because the economic indices will not stimulate investments and economic growth.
For recapitalisation, Mrs. Omo said, since plans have gone very far before the pandemic of Covid-19 erupted, it is not expected to impact on recapitalisation except the pandemic is not arrested within a short time frame. That to me is doubtful. The virus, like every other virus, has a lifespan. The only thing is that within the timeframe, its impact will be far-reaching on economic growth.”
Appeal for extension of recapitalization deadline to 2021
Similarly, an anonymous operator has pleaded on NAICOM to extend the recapitalisation deadline till next year, following the virus outbreak that is obstructing funding to meet the New capital threshold.
According to him, “It is important for the market to appeal to NAICOM to extend the recapitalisation deadline from December 31, 2020 to 2021 because of this coronavirus issue. If the COVID-19 problem does not go away by the third quarter of 2020, it would be rather difficult for many operators to meet the December 31, 2020 recapitalisation deadline set by NAICOM. The reality is that the current situation is adversely affecting all our strategies and plans to recapitalise on or before the deadline. I believe that if the market decides to approach the regulator on this issue as a body, something positive could be done.”
