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Industry Competitiveness Using Firm-Level Data: A Case Study of the Nigerian Insurance Sector

  • Godwin Enaholo Uddin
  • Kingsley M. Oserei
  • Olajumoke E. Oladipo
  • Damilola Ajayi
Conference paper
Part of the Springer Proceedings in Business and Economics book series (SPBE)

Abstract

With reforms to pioneer the Nigerian insurance sector toward a more competitive level, such had been envisaged to drive her participatory contribution to national development since over the years her huge economic potential has been relatively tapped minimally. Thus in view to ascertain empirically the height of competitiveness so far achieved, this work therefore seeks to analyze the Nigerian insurance sector market performance with the focus to perform market power studies. Thereby adopting the concentration measure as well as the Panzar-Rosse methodology using random effect panel estimation for the period 1999–2008, the study established the level of competitiveness in both the life and non-life (General Business) insurance sub-sectors. Having computed a ten insurance firms’ concentration ratios alongside deriving the value of the Panzar-Rosse H-statistic for both sectors, the non-life sub-sector was evident to be more competitive relative to the life sub-sector. Hence, it is envisaged that further attempts to engender competitiveness in either of the sub-sectors would include efforts to ensure all participating firms are enlisted on the Nigerian Stock Exchange in order to enhance their prowess of contributing to national development.

37.1 Introduction

A prime constituent of every country financial system notably is the insurance business, and many reforms pioneered in the Nigerian Insurance industry have been pointers for a reinvigorated and competitive industry. Pan African Capital (2013) had noted the insurance sector to evidently play an important role in the development of any nation, by transferring risks from businesses and individuals. That by playing an active role in the stability and efficient diversification of risks, it thus contributes immensely to economic development. The relevance of the insurance sector therefore cannot be overemphasized.

It is unfortunate however that the importance of this sector in the Nigerian economy has not being fully grasped; its participatory contribution to the national income has relatively been minimal despite the high economic potential which has been untapped (Meristem Securities 2014). More so, from an outlook of the Nigerian Insurance Industry with the National Insurance Commission (NAICOM) established through Decree No 1of 1997 and ever since pioneering the drive to enhance access to affordable insurance products, build confidence in the Nigerian Insurance market, promote public understanding of insurance mechanisms, eliminate fake insurance products, and develop and sustain insurance brokerage and agency that is poised for championing the course of the industry’s contribution to the nation’s Gross Domestic Product (GDP), the sector has remained receded in its impact on the Nigerian economy (NAICOM 2010).

The militating factors though posited to hamper the progress of the sector include low insurance coverage level, low penetration rate (or ratio), low level of acceptance, low insurance patronage, shallow perception among the populace, lack of awareness, neglect of retail end markets, non-remittance of insurance premium by insurance intermediaries such as insurance agents and brokers, nonpayment of premium as and when due especially by government and government agencies, unsettlement of claims on the part of the insurers, fake insurance intermediaries, unscrupulous claims by the insured, undercapitalization by insurers, lack of innovative products and services or customized products, poor financial reporting, lack of transparency, non-listing of some insurers on the floor of the Nigerian Stock Exchange (NSE), and undervaluation of the industry amidst others (Pan African Capital 2013; KPMG Africa 2015).

With various reform processes ongoing in the industry, huge potential abound consequently to exhibit the more lucrativeness of insurance business in Nigeria especially in her financial capacity to underwrite big insurance risks. The Market Development and Restructuring Initiatives (MDRI), the No-premium No-cover, the waves of mergers and acquisitions exercise, government supports and legislations, the local content initiatives in the oil and gas sector, the cabotage law in the maritime industry, the compulsory life insurance, etc. all account for measures to strengthen the working mechanism or framework of the sector (Pan African Capital 2013). The introduction of the Universal Banking mandate by the apex bank (i.e., the Central Bank of Nigeria – CBN) in 2001 alongside the already existing Bank and Other Financial Institutions Act (BOFIA) of 1991 however with the view to revitalize the Nigerian financial landscape as well as its adoptive practice by firms in the Nigerian financial system notably enabled the entrance of an almost unlimited number of participating firms in the insurance sub-sector (CBN 2012) and such partly promoted the competiveness in the Nigerian insurance industry. The later onward and compulsory recapitalization of insurance firms in 2005 enforced also by the CBN particularly seemed to have heightened the level of the industry’s competiveness as it then delimited the number of participating firms in the sub-sector (see Table 37.4 in Appendix), thereby eliminating the prevalence of rent-seeking firms operating in the insurance market and then fostered the growth of core insurance firms to be the players in the Nigerian insurance sector (CBN 2012; Fashoto et al. 2012).

In fulfilling its role as insurers and risks takers, insurance companies pool large sums of money in order to perform their roles creditably. Thus, a strong and competitive insurance industry is a compelling imperative for Nigeria’s economic growth and development (Ujunwa and Nwanneka 2011).

Against this background therefore, there are good reasons to assess the Nigerian insurance sector market performance with the view to perform market power studies on firms in the Nigerian insurance market. One of which is to contribute to the literature with focused and detailed research into the competiveness of firms in the Nigerian Insurance sector. The level of competitiveness thereof is evident by the extent of market power enjoyed by these firms. With the objective to assess the competitiveness in the Nigerian insurance sector, the study begins with a review of related literature (Sect. 37.2). Section 37.3 discusses the methodology and data issues, while Sect. 37.4 presents the estimated results and discussion. Section 37.5 concludes the work.

37.2 Literature Review

37.2.1 Definitions of Insurance and Risk

The place of insurance and risk in modern business practice has been acknowledged by various scholars in the literature. In this case, the understanding of insurance and risk in business is pivotal for proper place of insurance and risk in modern business practice. Isenmila (2002) defined insurance as a contract whereby a person called the insurer or assurer agrees in consideration of money paid to him, called the premium, by another person, called the insured or assured, to indemnify the latter against loss resulting to him on happening of certain events.

According to Ujunwa and Nwanneka (2011), insurance is generally defined as the pooling of funds from the insured (policy holders) in order to pay for relatively uncommon but severely devastating losses which can occur to insured. Insurance as a contract is between two parties where one party called the insurer undertakes to pay the other party called the insured a fixed amount of money on the occurrence of a certain event. To Obasi (2010) cited by Ujunwa and Nwanneka (2011), insurance is contract between the person who buys insurance and an insurance company who sold the policy.

Risk on the other hand is the chance of a loss, the possibility that a predicted result differs from the actual result. Identifiable risks could be categorized into pure risk and speculative risk. Pure risks are risks which can only lead to a loss. Usually pure risks are not associated with the pursuit of profit, for example, risk for private use of a car. Speculative risks, on the other hand, are chances of losses or gain, for gambling. They are avoidable risks (Isenmila 2002).

37.2.2 Overview of the Nigerian Insurance Sector

The insurance sector in Nigeria have being buttressed to be of a passive role in the economic development of the country, lagging behind with major policy reforms given the huge economic potential that remains largely untapped in the industry. Particularly with the much population and GDP growth rate averaging 7.4% over the last decade, the penetration ratio has continued to lag behind those of other formal financial services with a performance of 0.7% penetration rate and less than 1% contribution to GDP. Also over the years, the insurance business in the country has been focused mainly on the underwriting of risks for companies, so much so the reason for the low penetration ratio because it is skewed toward some sectors such as trade, transports, etc. and neglecting the retail end-markets (Pan African Capital 2013; KPMG Africa 2015).

Furthermore, it is imperative to note that the Nigerian insurance market is a broker market because brokers control about 90% of the premium income, while the remaining 10% is left for insurance agents and direct marketing by insurers with implications being that insurers tend to struggle to cover policy payment in case of any claim arising and also are left with limited funds to invest in the economy, of which consequently reduces its level of profitability and contribution to the economy as well as aggravating the waning public perception (Pan African Capital 2013).

Examining thereof the level of transparency among participating firms in the Nigerian Insurance sector, findings from NAICOM revealed that as at August 27, 2013, only 29 insurance firms were listed on the NSE with their insurance stocks poorly valued at the market as 20 out of the 29 insurance stocks were trading at nominal value of 50 Kobo (Pan African Capital 2013).

Despite however a seemingly poor industry outlook, the insurance sector boasts of a huge cash flow generating capacity with total gross premium presenting a possible opportunity and progressive trend for improvement. Available industry data shows that the total industry gross premium stood at N233.75 billion and N200.38 billion for the year 2011 and 2010, respectively, compared to N60.20 billion and N53.82 billion in total claims for the industry for the same period. This depicts an annual growth rate of 16.66% and 5.48% in 2011 and 2010 for total gross premium compared to 11.87% and −13.16% for industry’s total claims (Pan African Capital 2013).

37.2.3 Development of Insurance Business Regulation in Nigeria

The first major step at regulating the activities of insurance 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 later transferred to the Ministry of Finance. The report also led to the enactment of Insurance Companies Act 1961, which came into effect on 4 May 1967 (NAICOM 2015).

The 1961 Act focused mainly on the activities of direct insurers, made provisions for registration and record keeping. 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 (NAICOM 2015).

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. Thus, the Insurance Decree No 59 of 1976 constituted the first all-embracing law for the regulation and supervision of insurance business in Nigeria (NAICOM 2015).

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 (NAICOM 2015).

The Federal Government of Nigeria promulgated the Insurance Special Supervisory Fund (ISSF) Decree 20 of 1989 to strengthen the manpower need of the Insurance Supervisory Board. That Decree mandated all insurance companies to contribute 1% of their gross earning to the fund (NAICOM 2015).

Decree No 58 of 1991 was enacted improving provisions of Decree No 58 of 1979 and No 40 of 1988. The major highlights of the 1991 Decree include increased paid-up share capital of insurers and reinsurers in respect of non-life business and life business, respectively, compulsory membership of trade associations, management of security fund by NIA, and practice of No-premium No-cover (NAICOM 2015).

In 1992, the ISSF Decree No 62 was enacted, establishing a body known as National Insurance Supervisory Board, bringing out insurance supervision outside core civil service, changing designation of Chief Executive from Director of Insurance to Commissioner of Insurance, and setting up the Board of Directors to oversee the affairs of the established body. All this provisions were made to attract high-level manpower. The provisions of Decree No 62 of 1992 and 58 of 1991 were reviewed for effective supervision and efficient insurance market, bringing into enactment Decree No 1 and 2 of 1997, National Insurance Commission, and Insurance Decree, respectively (NAICOM 2015).

The following provisions were made in reviewing Decree No 62 of 1992 and Decree No 1 of 1997: change of name from National Insurance Supervisory Board to National Insurance Commission, establishment of Governing Board, staffing, source and application of funds, control and management of failed and failing insurance companies, and supervisory functions and powers (NAICOM 2015).

Decree No 58 of 1991 was improved on with Decree No 2 of 1997 in the following areas: by raising the paid-up share capital for different categories of insurance companies, qualification of Chief Executive, and insurance of government properties amidst others (NAICOM 2015).

37.2.4 Evaluation of the Nigerian Insurance Sector Reforms

Financial reforms, according to Ebong (2006) cited in Iganiga (2010), are deliberate policy response to correct perceived or impending crisis and subsequent failure. Reforms in the financial industry are aimed at addressing issues such as governance, risk management, and operational inefficiency. Financial reforms are specifically driven by the need to achieve consolidation, competition, and convergence of financial architecture.

Insurance sector therefore as a sub-sector, is part of the broader financial system reforms in Nigeria. According to FSS (2010), the industry started in 1921, went through indigenization decree of 1972, and became open in the 1980s.

To further reposition the sector for competiveness and confidence, NAICOM was set up by Acts of 1997. Six years after, the Insurance Act was enacted, and the Insurance guidelines for consolidation and recapitalization were first issued. The results of the measures have led to the promotion of insurance sector depth and efficiency (FSS 2010).

Furthermore, as stated in FSS (2010) the vision statement of the sector read as follows: “To become insurance sector of first choice in Africa noted for high level of capacity, transparency, efficiency and safety and attain 15th position in world insurance premium generation by the year 2020,” and the major reform efforts to achieve the above vision were highlighted as follows: to ensure that the sector is financially sound (capacity), creating an efficiency market structure (efficiency), creating consumers trust in the sector (safety), and engendering competitiveness. However, efforts to engender competitiveness have further promoted concentrated market structure in the industry.

IMF (2010) in a study notably examining the competitiveness in Nigerian insurance sector and using concentration ratio technique established findings that the non-life insurance market, relatively to the life insurance market, was highly concentrated. The study revealed that top 10 insurers account for over 50% of the market gross/written premium in non-life insurance business in Nigeria, while one insurer (AIICO) held 20% of market share in life insurance business.

37.2.5 Justification of the Study

Fashoto et al. (2012) examined the Nigerian Insurance landscape with the focus of assessing the pre-recapitalization and post-recapitalization of the operating insurance firms as of 2008 using performance surveys and applying AHP Model.

Pan African Capital (2013) also assessed the performance of insurance firms in Nigeria and although implicit in the work was an insight into the competiveness, such was largely descriptive.

Meristem Securities (2014) which also was a descriptive work adopted briefly the Herfindahl-Hirshman Index (HHI) to evaluate the level of competition in Nigerian Insurance sector.

KPMG Africa (2015) was also largely descriptive but with little emphasis on competitiveness and was regional-focused not Nigeria-centered.

The study will therefore go beyond the descriptive studies using econometric specification to determine the level of competitiveness with the inclusion of variables that are relevant in determining the outcome. Thus, we adopted the Panzar-Rosse (PR) H-statistic to ascertain the degree of competitiveness and used the concentration ratio technique also to show the degree of market power prevalent within the market and enjoyed by these firms over the period under review. The beauty of the paper therefore is the up-to-date analysis it provides, which is a variant from other studies.

37.3 Methodology

37.3.1 Theoretical Framework

The study adopts the concentration ratio analysis and the Panzar-Rosse (1987) methodology in measuring competitiveness in the Nigerian insurance sector. Criticisms however of the Panzar-Rosse (1987) model were emphasized by Simpasa (2013).

37.3.1.1 The Concentration Measures

Vassilopoulos (2003) noted that two schools of thought dominate academic research in examining market power, which defined by the US Department of Justice and Federal Trade Commission (2002) means the ability of single firm or a group of competing firms in a market to profitably raise prices above competitive levels and restrict output below competitive levels for a sustained period of time.

Thus, a competitive market is such that needs many sellers and in such market sellers are price takers and cannot affect the market price because if they charge a higher price, buyers will go elsewhere. While thanks to competition as whenever prices for a product become too high relative to costs, consumers switch their demand to other products, or other companies discover the profitable market, enter the market, and conquer market shares since the ability to substitute away from high-priced products, on the demand side or on the supply side, is the key disciplining force on a free market, putting pressure on companies and constraining their behavior such that they cannot arbitrarily raise prices without losing market shares and, as in the long run, the competitive pressure is essential for the economic efficiency of the market; a monopoly, in contrary, has the ability to drive prices up without the fear that other sellers will undercut his price since he can produce less and set his product at a higher price that will allow him to make extra profits, and by restricting output, the monopolist diverts resources from their highest value use (deadweight loss). At the high prices, transfers of money from consumers to monopolists occur (Vassilopoulous 2003).

However, all markets are somewhere in between perfect competition and monopoly. If a market has just a few large sellers they will act just like a monopoly and they will be able to set the market price to some extent. But of course, not all high prices are due to market power but rather a scarcity rent, provided there is a demand response, so that the price can only rise to what the last consumer is willing to pay. Antitrust literature identifies two types of market power: horizontal and vertical. Horizontal market power is exercised when a firm profitably drives up prices through its control of a single activity. Vertical market power arises when a firm involved in two related activities uses its power to raise prices and increase profits for the overall firm (Vassilopoulous 2003).

In a competitive market thereof, the most profitable strategy notably to be adopted by a price-taking producer is the bidding of output and such a firm also is said to have market power when it acts in a manner that is intended to change market prices but maintains them at a noncompetitive level for a sustained period of time (Vassilopoulous 2003). The concentration measures which are computed using varied concentration structural indexes like the market shares, the HHI and his many refinements, and the residual supply indexes thus serve as an aid to show empirically such market power, but this study will focus on the use of market shares.

While according to the Harvard school and their structure-conduct-performance (S-C-P) paradigm, there is a causal relationship running from industry structure through the behavior of existing firms to the performance of the market, measured by, e.g., pricing since as market concentration increases, the equilibrium price departs more and more from the perfectly competitive level and goes toward the monopoly level, the Cournot model according to which oligopolists set quantities provides a theoretical justification for this thinking: As market concentration increases, the equilibrium price departs more and more from the perfectly competitive level and goes toward the monopoly level, and so for the Harvard school, there is a one-to-one correspondence between market power and market concentration; the Chicago school on the other hand holds the opposite view as they believe that firms grow big and get a large market share because they are more efficient than other firms: Efficient firms grow; inefficient firms become smaller and disappear. That the causal relationship thereby runs from efficiency to market structure (and profitability). The Chicago school model as a result is consistent with the Bertrand model of competition according to which oligopolists set prices (Vassilopoulous 2003).

Using the concentration ratio analysis technique, we seek to detect market power by examining three components of the firms’ balance sheet thereby providing us ascertained evidence to the level of market power exhibited by these firms. Thus, it shows the prevailing market structure operated by these firms. More so, it will envisage the level of dominance out-playing in the Nigerian insurance landscape.

37.3.1.2 The Panzar-Rosse Methodology

As cited by Simpasa (2013), the H-statistic proposed by Panzar and Rosse (1987) have been widely employed in empirical models of measuring market competitiveness and market power. The H-statistic, the sum of revenue elasticities with respect to varied inputs, measures the extent to which a change in input is reflected in the firms’ equilibrium revenue. Market structure notably is determined by the magnitude and sign of the H-statistic. Briefly, its interpretation is summarized in Table 37.1 as follows:
Table 37.1

Interpretation of the Panzar-Rosse H-statistic

Value of H-statistic

Market structure characterization

H ≤ 0

Monopoly

0 < H < 1

Monopolistic competition

H = 1

Perfect competition

Market equilibrium test

E = 0

Equilibrium

E ≤ 0

Disequilibrium

Source: Simpasa (2013)

The empirical PR methodology would employ the models as follows:

As the Nigerian insurance sector is categorized into life insurance sub-sector and non-life insurance sub-sector, models 1 and 2 would be adopted to capture these sub-sectors, respectively.

Hence, for life insurance sub-sector:
$$ \mathrm{GRPM}{1}_{\mathrm{it}}={\beta}_0+{\beta}_1\mathrm{WTPM}{1}_{\mathrm{it}}+{\beta}_2\;\mathrm{TAST}{1}_{\mathrm{it}}+{\beta}_3\;\mathrm{GRCM}{1}_{\mathrm{it}}+{\beta}_4\mathrm{MEXP}{1}_{\mathrm{it}}\cdots $$
(37.1)
where
  • β 0 denotes constant term

  • β1, β2, β3, and β4 are the revenue elasticities

  • GRPM1 represents gross premium taken as the revenue of firms in the life insurance business

  • WTPM1 represents written premium of firms in the life insurance business

  • TAST1 represents total asset of firms in the life insurance business

  • GRCM1 represents gross claim of firms in the life insurance business

  • MEXP1 represents management expenses of firms in the life insurance business

While for non-life (or general business) insurance sub-sector:
$$ \mathrm{GRPM}{2}_{\mathrm{it}}={\beta}_0+{\beta}_1\mathrm{WTPM}{2}_{\mathrm{it}}+{\beta}_2\;\mathrm{TAST}{2}_{\mathrm{it}}+{\beta}_3\;\mathrm{GRCM}{2}_{\mathrm{it}}+{\beta}_4\;\mathrm{MEXP}{2}_{\mathrm{it}}\cdots $$
(37.2)
where also
  • β0 denotes constant term

  • β1, β2, β3, and β4 are the revenue elasticities

  • GRPM2 represents gross premium taken as the revenue of firms in the non-life insurance business

  • WTPM2 represents written premium of firms in the non-life insurance business

  • TAST2 represents total asset of firms in the non-life insurance business

  • GRCM2 represents gross claim of firms in the non-life insurance business

  • MEXP2 represents management expenses of firms in the non-life insurance business

From the models (Eqs. 37.1 and 37.2), H = β1 + β2 + β3, + β4, the sum of the revenue elasticities with respect to varied inputs.

NB: The difference between gross premium and written premium is taken to be reinsurance cost.

37.3.2 Analytical Framework

The concentration ratio computation for both life and non-life (or general business) insurance firms’ classification, respectively, will entail evaluation based on their gross premium, total assets, and gross claims as a ratio of the industry’s gross premium, total assets, and gross claim for the period 1999–2008.

Annual panel observations from 1999 to 2008 for 27 insurance firms in the Nigerian insurance sector (20 out of 25 listed on NSE and 7 others not listed on NSE, respectively; see Table 37.5 in Appendix) and the panel estimation approach would be used to estimate the Panzar-Rosse H-statistic while also using the data so collated the degree of concentration for the Nigerian insurance market will be established using the concentration ratio analysis technique.

37.3.3 Data Issues

Following Fashoto et al. (2012) classification, the data to be adopted for the study include annual panel observations from 1999 to 2008 for 20 insurance companies that deal with general business only out of 27, 10 insurance companies that deal with life business only out of 12, and 10 insurance companies that deal with both life and general business only out of 14, making a total of 40 insurance firms out of 54 as at 2008 – a proportion of about 76% of the insurance firms operating as at the period, while one is an insurance company that insure other insurance companies, as well as industry statistics collated from Nigerian Insurers Association (NIA) 2005 and 2009 Statistical Journals and Central Bank of Nigeria (CBN) Statistical Bulletin 2012. It is notable that this study captures 25 out the 29 insurance firms listed on Nigerian Stock Exchange as at September 2013 (Pan African Capital 2013), the excluded firms being Continental Reinsurance, Staco Insurance Plc, Unity Kapital Assurance Plc, and Universal Insurance Company due to unavailability of data.

37.4 Results and Discussions

37.4.1 Concentration Ratio Analysis

From the concentration ratio analysis technique, the market power exhibited by the 22 and 26 insurance firms in both life and non-life insurance sub-sectors, respectively, using a ten-firm concentration ratio – CR10 (%) – is illustrated in Tables 37.2 and 37.3.
Table 37.2

Ten life insurance firm concentration ratios, CR10 (%)

 

Gross premium

Total assets

Gross claims

1999

42.03

82.80

35.79

2000

82.84

67.15

81.24

2001

87.25

29.63

14.99

2002

70.25

80.35

22.17

2003

70.18

6.35

43.93

2004

48.64

37.52

70.28

2005

81.64

51.84

38.41

2006

66.02

76.36

60.94

2007

55.52

77.21

76.21

2008

67.48

53.35

56.06

Source: Computed by authors

Table 37.3

Ten non-life insurance firm concentration ratios, CR10 (%)

 

Gross premium

Total assets

Gross claims

1999

26.29

44.19

26.84

2000

61.75

49.07

56.57

2001

60.47

21.39

13.59

2002

53.13

43.54

10.19

2003

44.58

3.23

16.60

2004

54.17

60.85

18.52

2005

22.57

50.76

22.00

2006

53.54

64.29

56.28

2007

69.04

64.14

57.55

2008

61.99

52.94

66.15

Source: Computed by authors

For an analysis of the degree of concentration in both sub-sectors, the market power of the ten largest insurance firms by asset size as at 2008 was examined out of 22 in the life insurance sub-sector, while on the other hand the ten largest insurance firms by asset size as at 2008 were examined out of 26 in the non-life (or general business) insurance sub-sector.

It is prudent to state here that, of the 27 insurance firms examined in the study, 1 did life business only, 5 did general business only, and 21 did both life and general businesses.

Examining Table 37.2 above shows the life insurance companies’ market structure as indicated by the ten-firm concentration ratios (CR10) in three components of the insurance companies’ balance sheet. The degree of concentration thereof in the life insurance sub-sector was evident across the years under review and relative to these three components.

With the inception of democratic system of governance in 1999, the life insurance business seemed to have flourished evidently as the ten large life insurance companies accounted for about 83% of the total industry assets, alongside a near average dominance of 42.03% and 35.79% in total industry gross premium and total industry gross claims, respectively.

Further on, enviable progress was vivid in 2000 with these companies accounting for a huge proportion of total industry receipt mobilization, i.e., gross premium as well as total industry payouts, i.e., gross claim of over 80% and total industry assets’ share of about 70%.

In later years of 2001 and 2002, the tremendous height of business performance among these ten large life insurance companies was somewhat sustained with proportion of total industry gross claims tuned down below 25% (14.99 and 22.17 in respective years), while proportion of total industry gross premium was over 70%. The inadequacy of data for the worth of assets owned by some of these ten large life insurance companies in 2001 however impaired the effort to ascertain precisely their total industry assets’ proportion.

Although maintaining still a strong business presence in 2003 with total industry gross premium at over 70%, the unavailability of data also for some of these companies in terms of their assets in order to aid know their proportion of total industry asset net worth and the increased total industry payouts to 43.93% could be likened to the electioneering process of the year. Whereas in 2004, the unprecedented fall in these ten large life insurance companies’ proportion of total industry gross premium to 48.64%, a poor proportion of her total industry assets at 37.52% and a further increased proportion of total industry gross claims to 70.28% could be reiterated as due to uncertainties associated with the country’s investment climate following an electioneering year.

However, the ten large life insurance companies accounted for more than 50% of total industry gross premium and assets in 2005. Their dominance also was seemingly pronounced over the years 2006 and 2008 with above-average concentration.

As regards the non-life insurance companies’ market structure for the years under review and of which is depicted with Table 37.3, a fair and progressive business performance seemed also was recorded with the inception of democratic system of governance in 1999. In a similar manner, the ten large non-life insurance companies accounted for about 50% of the total industry assets between 1999 and 2002 except in 2001for which there was inadequacy of data for the worth of assets owned by some of these ten large non-life insurance companies. Though total industry gross premium and gross claim proportion were poor in 1999, i.e., only about 27%, respectively, they increased to more than average and decreased significantly, respectively, between 1999 and 2002.

The electioneering process and the unavailability of data also for some of these companies in terms of their assets in a way seemed to have engendered the below average total industry gross premium proportion of 44.58% in 2003, the increased total industry gross claim proportion from 10.19% in 2002 to 16.60% in 2003, and the inability to ascertain precisely their total industry assets’ proportion.

The commencement of a new democratic regime in 2004 on the other hand could be implied as such that could have somewhat fostered the non-life insurance business performance – increasing total industry gross premium and assets proportion, respectively, to 54.17% and 60.85%, while the further increase in total industry gross claim proportion to 18.52% may be attributed to the uncertainties associated with the country’s investment climate following an electioneering year.

A huge data deficit for non-life insurance businesses of most of these ten large non-life insurance companies in 2005, except in terms of their assets worth, largely constrained establishing findings for the non-life insurance sub-sector.

Other years however, i.e., 2006 and afterward, subsequently show a high degree of market power above-average concentration.

37.4.2 Panzar-Rosse H-Statistic

The Panzar-Rosse H-statistic established for both the life and non-life insurance sub-sectors, respectively, showed a higher degree of competitiveness in the non-life insurance sub-sector (see Tables 37.7 and 37.8 in Appendix).

The sum of the revenue elasticities for the life insurance sub-sector given as 1.004 shows that the life insurance market is deduced empirically to be competitive, following the H-statistic decision rule cited in Table 37.1. More so, with significant t-statistics and p-values except in terms of total assets and gross claims, a high weighted r-square and good Durbin-Watson statistic, the finding is envisaged as reliable.

For the non-life insurance sub-sector with the H-statistic given as 2.839, such shows that the non-life insurance market is seemingly more competitive relative to the life insurance market. This deduction is ascertained to be reliable also since with significant t-statistics except in terms of total assets, p-values, high weighted r-square, and good Durbin-Watson statistics.

37.5 Conclusion and Recommendations

The objective of the study being to assess the competitiveness in Nigerian Insurance Sector shows a high degree of market power or concentration by the ten insurance firms examined in both the life and non-life insurance sub-sectors, respectively.

The non-life insurance market however is evident to be more competitive relative to the life insurance market since with a higher H-statistic, and such is related to the study by IMF in 2010 attesting that the non-life insurance market relatively to the life insurance market is highly concentrated among other findings. More so, IMF (2010) stated that ten insurers account for over 50% of the market gross/written premium in non-life insurance business in Nigeria, while one insurer (AIICO) held 20% of market share in life insurance business.

The degree of competiveness however is envisaged to have been better ascertained in this study if two leading insurance firms – Industrial and General Insurance (IGI) and Leadway Assurance dominant in non-life and life insurance sub-sectors, respectively, were listed on the Nigerian Stock Exchange (NSE) since the study focused largely on insurance firms listed on the floor of the NSE.

37.5.1 Limitations of the Study

The scope of the study is limited by unavailability of data beyond 2008, and of which if provided could aid one carry out more robust analysis.

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Copyright information

© Springer International Publishing AG, part of Springer Nature 2018

Authors and Affiliations

  • Godwin Enaholo Uddin
    • 1
  • Kingsley M. Oserei
    • 2
    • 3
    • 4
  • Olajumoke E. Oladipo
    • 5
  • Damilola Ajayi
    • 3
  1. 1.School of Management and Social SciencesPan-Atlantic UniversityLagosNigeria
  2. 2.Nigerian Economic Summit Group (NESG)LagosNigeria
  3. 3.Department of EconomicsUniversity of LagosLagosNigeria
  4. 4.Alpha Morgan Capital Managers LimitedLagosNigeria
  5. 5.Access Bank PlcLagosNigeria

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