At the end of last week the 2019 Nigerian Insurance Industry report ‘From the Lagoon to the Ocean’ was released by Coronation Research, a leading research house in Nigeria. The report takes a critical look at Insurance industry, outlining the current state of the industry and the opportunities that exist for growth. To find out more we spoke with Guy Czartoryski,Head of Research at Coronation Merchant Bank.

In your recent report on the Nigerian Insurance sector you talk about the extreme lack of penetration and the three key opportunities you see present for growth.  Cooperation of government and all regulators, Micro-Insurance and education of the market, and finally technology.If we look at the first area of cooperation of government and all regulators (insurance, telecom, banking). Why is this key? Why not just leave it all up to the insurance regulators?

Guy Czartoryski
Guy Czartoryski

To begin with, consider that the National Insurance Commission (NAICOM) has a difficult job. Imagine a situation where you are regulating 59 insurance and reinsurance companies. Some of these companies do not have much capital, some are making losses, others might not comply with regulations.

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Most of the time NAICOM is, in all probability, looking after the difficult cases and resolving them. It is therefore spending disproportionate effort on the weakest companies. In such a situation you need to ask how to fix the problem in a strategic way. And the answer it to raise the minimum capital thresholds because that stabilizes the financial outlook of the industry and is likely to reduce the number of players at the same time.

This much NAICOM can do on its own. There are other factors working in its favour. If NAICOM had done this five years ago the available data and technology for industry expansion were not as developed as they are now. Today there are 38 million bank verification numbers in Nigeria, which is a very important starting point. There are over 170 million registered mobile phone lines (though not the same number of customers). Technological platforms to service several millions of customers are available.

However, it can be argued that the industry needs a deeper level of regulatory cooperation than it has at present. One of the results of our study was to show that the potential of allowing more bancassurance, or more involvement with telecom distribution, could take insurance penetration from the current level of 0.31% (total industry gross premiums divided by nominal GDP) to ten times this level over eight-to-ten years. That would benefit all parties: insurance companies, banks and telecom companies. It is a pretty easy concept to sell.

We have looked across at other insurance markets with similar GDP per capita, such as India and Kenya. Insurance penetration in India is 3.69%, in Kenya it is 2.37%. In Ghana total industry gross premiums were rising in US dollar terms between 2013-17 when in Nigeria they were falling. We are sceptical of cultural explanations for why Nigeria’s insurance industry is not performing.  Nigeria’s total gross premiums in inflation-adjusted or US dollar terms have barely grown in ten years. The reasons are: lack of capital; lack of scale; too many companies; not enough regulatory cooperation.

That last point is controversial, but the evidence to back it up is strong. In India the government backed a roll-out of insurance on a significant scale, using state insurance companies. Micro-insurance was rolled out as a priority. In South East Asia a number of different methods have been used, including bancassurance and mobile telephony. In Ghana mobile telephony plays a key role. In our view the regulations governing bancassurance and distribution with mobile telephony in Nigeria are more restrictive than in other countries. Yet the strength of bank and mobile telecom distribution channels are undoubted, and they have been used successfully elsewhere. There is the argument for the regulators to work closely together.

Can you tell us about the strategic implication of the NAICOM reform?

We took a sample of 38 of the 59 insurance companies in Nigeria, those for which sufficient information is available, and calculated how NAICOM’s reforms would affect them as things stood in May this year when NAICOM issued its key circular. The answer was that only 37% of companies met NAICOM’s new capital requirements while a further 25% reached at least 75% of NAICOM’s new capital requirements. We reason that if an insurance company reaches 75% of NAICOM’s capital requirement then it may find it possible to raise a small amount of extra capital, or retain earnings, in order to comply in full.  So, we think that 62% of our sample do not face significant difficulties.

And then there are the others. 11% only met 50% of the capital requirement (but not as much as 75%) and 27% did not meet 50% of the capital requirement. This means that a number of companies are going to have to raise capital. We already know of eight companies raising new capital and we expect more to come.  However, some companies will not be able to raise capital on their own. The way forward for them will be to merge with other companies. But even then, we expect at least some companies to be eliminated altogether. We think the number of companies will be reduced from 59 to around 25.

The obvious comparison here is with Nigeria’s banking reforms of 2004, which raised sharply the minimum capital level of banks and reduced their number from 89 to 25. Something similar is happening in the insurance industry. The banks, as is well known, then went into a period rapid development, with total gross loans growing at a compound annual growth rate, in inflation-adjusted terms, of 26.9% between 2004-09. So, the strategic implication for the insurance industry is to have, from mid-2020 onwards, a much stronger capital base, far fewer companies, and the potential to grow rapidly.

Of course, we do not know exactly the shape of the insurance industry that will emerge in mid-2020. However, we can make some general observations. First, it is likely to have between six and eight foreign-backed (if not majority foreign-owned) leading insurance companies. This is significant because of the experience they have in rolling out insurance in South East Asia and India. Second, it is likely to have between six and eight leading wholly indigenous Nigerian insurance companies. So, the leaders will likely be evenly foreign and locally-owned.

What can insurers do to increase their profitability and RoE?

In our report we look in detail at the profitability of Nigeria’s insurance companies. The return on equity over time is generally lower than the risk-free rate, in other words the internal rate of return is less than what you would earn on a T-bill. And if the returns do not exceed T-bill yields then they get nowhere near the cost of equity. So, it not a good situation and not one in which it is easy to make the business case for raising fresh capital, unless you can argue that there is significant growth ahead.

We also look at the loss ratios of Nigerian insurers so see whether their underwriting ability, sometimes known as profitability of risk transfer, is at fault. The surprising thing, perhaps, is that the loss ratios of Nigerian insurers are not outside the bounds of international norms. There are differences between sub-sectors (Composite, Non-Life and Life) but in general the loss ratios do not seem to be the problem.

The problem comes with expense ratios. There are very high and well beyond what we consider to be normal in the global industry. But perhaps this should not be surprising. After all, we are talking about an industry which has barely grown, in real terms, over the past ten years. Fixed costs are difficult to carry when business is not growing. The companies have problems reaching the scale where their fixed costs make sense.

Adding the loss ratios and the expense ratios together comes to the combined ratio, and the industry aims for a ratio of less than 100%. Most Nigerian insurance companies exceed 100% most of the time. There are some remarkable exceptions, but in general it is not a very profitable industry. Since it is not underwriting that is to blame (in most cases) the real problem comes from lack of scale. And lack of scale is hardly surprising when, over the long term, there has been almost no growth.

How will micro-insurance products help increase awareness?

Insurance is about trust. In any market you begin with a sceptical audience. As noted above, we do not think cultural reasons explain the lack of insurance penetration in Nigeria. The role of micro-insurance is to provide insurance at low cost to many customers and, in the process, familiarize the market with the concept and operations of insurance. A reliable claims history is important here. One way of doing this is to bundle basic accident cover with other services, such as banking or telecoms services, so that the cost is not noticed and therefore goes unchallenged.

The key thing about micro-insurance is that it is widely seen as meeting a developmental goal. If you take household economics, and the devastating effects that personal accidents can have on them, then micro-insurance becomes important to achieving economic security. Once the market understands that it is buying economic security, then selling insurance becomes easier.

What are the key lessons from India that insurers can learn?

Not every market has the structural advantages that India has. There is a large network of state insurance companies, as well as state banks, to rely on. The firstpoint about India is that the regulator is called the Insurance Regulatory and Development Authority of India (IRDAI), the key word being Development. So the regulator works as a development body, not just a referee. The next lesson from India is that the public sector spearheaded the development of insurance but the private sector benefited from the market education that this brought.

How can technology assist insurers in reducing cost, boosting awareness and increasing their RoE?

Different markets develop insurance in different ways. In Nigeria all the ingredients are there in terms of technological datasets and operating platforms. And, from the middle of 2020 there will be a re-capitalized industry that will have undergone a process of consolidation. Whatever technology, or mix of technologies, will be adopted cannot be known. But all the raw elements for a transformation of the industry are in place, so NAICOM’s reforms are coming at a good time.

How do banks appeal to Generation Z?


For years now, banks have been targeting the Millennial customer. Born between 1980 and 1994, the academically defined Generation Y have struck fear and confusion into businesses concerned with how they can best engage with a generation that’s grown up with the Internet.

Mark Aldred
Mark Aldred

Millennials are getting older and are as likely to be senior managers within many retail banks. Their behaviours are well-known and thoroughly mapped out.

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So, while Millennials and, of course, older generations remain the most valuable groups of customers to engage with today, what of the next generation of new customers?  How should banks appeal to Generation Z?

Generation Z is pegged as those born between 1995 and 2015,and they are aged anything between four to 24 years old right now.

Quite simply they are the banking customers of the near future.Gen Z already makes up 30 percent of the world’s population and will represent a third of global consumers in ten years’ time. In some countries like the USA, Gen Z makes up a quarter of the population and will be within reaching distance of being a half of all US consumers by 2020.  Their spending power is already high. It is estimated that the total spending power of Gen Z today is $3.4 trillion. In the US it is estimated their direct spending power could be as high as $143 billion.

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Understanding Gen Z will become crucial over the next 10 years. So, what should banks be doing about engaging with this group, alongside their current focus on Millennials and older age group customers?

There are some obvious characteristics. With the oldest GenZ-er currently aged 24 – they are younger than Amazon, which celebrated its 25th birthday in July 2019.  GenZ grew up in the connected digital age and has no experience of anything before the Internet or the mobile phone.

This absolute lack of experience of a pre-digital world sets GenZ apart from Millennials.  Members of Gen Z take digital to the extremes.

Gen Z do not simply use smartphones; they live their lives on them. One study by generational experts revealed 65% of Gen Z admit to being on their smartphones after midnight a few times a week or more often; and of these, 29% confess they are on their smartphones after midnight every night.  More so than Millennials, Gen Z is always on – and content consumers of – everything from YouTube to Snapchat to Netflix and everything else in-between.

Best Ways for Banks to Interact with Gen Z-ers

In crafting their omnichannel strategies, it is important for banks to appreciate that Gen Z makes no distinction between the online and offline worlds. They don’t see any differences between going on the Internet and doing something else.

Mobile banking seems to be the obvious channel to interact with them; indeed, because it is less common for them to use a laptop to access things, the rise of Gen Z may hasten the demise of “traditional” web banking.  In this regard Gen Z consumer don’t choose a bank, rather they choose a banking app they like. And like other apps, they are as likely to ditch that app when it loses relevance or functionality for their personal lives.

Is Gen Z Interested in or Indifferent to Banks?

All the above may make you think that Gen Z has little connection to traditional banking. Some studies do suggest this group don’t see a role for banks in their lives, for example a 2018 report by Raddon and The Financial Brand, found nearly a third of Gen Z do not believe they will need to rely on banks in the future.

The Gen Z absolute mobile-first, app-led attitude has to make this generation ripe for alternative app-only banks. Yet, GenZ can be engaged on financial affairs by traditional banks if they address this generation’s real interest in money.

Unlike Millennials, generational experts define Gen Z as more conservative about money because of how their young lives have been shaped by the financial recession and austerity of the early 21st century.  This is creating an interest in savings and financial management that is stronger than the previous generation – for example, 56 percent of Gen Z have spoken with their parents about savings. One 2017 study  has said more than one in 10(12 percent) of Gen Z have even started saving for their retirement.

There is another, seemingly contradictory side to this generation’s interest in taking greater control over their financial affairs. While they may seem to dismiss the idea of using a traditional bank, Gen Z says it prefers to do its banking face to face; in the same Raddon/Financial Brand study, 48 percent expressed this preference. This trait stems from more than just their financial conservatism but also how Gen Z are generally regarded as considerate consumers who want to dig deep into a brand. A hefty 78 percent seek authenticity in brands, answering why they might prefer to look a banker in the eye when they seek financial advice that’s trustworthy and authentic.  Indeed, some generational experts refer to Gen Z as the True Generation.

Will Gen Z Save the Bank Branch?

So, GenZ appears to be reinforcing how banks need to have a physical strategy for their online and branch banking.

In considering how banks make their branches attractive to GenZ, banks should learn some lessons from physical retailers in their response to this younger generation. The accepted wisdom is younger people are rejecting bricks and mortar retail. Yet, the latest research says a majority (76 percent) of Gen Z  say the experience of shopping in physical stores is better than going online and they make most of their key product purchases in stores.

This finding seems to offer hope for bank branches, but it is important to understand what makes physical shopping preferable to Gen Z, and apply those findings in how branches are redesigned and run. For example, what makes Gen Z like physical shopping is how it allows them to socialise, see, try and buy merchandise immediately.  This might translate into reconfiguring branches as social hubs, as well as empowering staff to offer financial assistance easily and with quick decisions on confirming financial products within the branch. A great example of this is how Capital One is opening up cafes rather than bank branches to serve financial advice alongside lattes and much more. And, of course, the branch has to be mobile-friendly at all times – the fact that more than four-fifths of Gen Z use their smart phone when shopping must apply when they visit a branch, too.

Make Banking Authentic, Not Gimmicky for Gen Z

Some might be attracted to make banking more of an experience for this generation. Certainly, some retailers who are fighting for relevancy with Gen Z and Millennials have invested in major re-modelling of their stores to attract consumers by offering much more than a traditional retail experience. For example, UK fashion retailer,Primark, has opened its largest store with in-store experiences including a Disney themed café, beauty salon and barber shop. Some stores have gone even further and created experiences aligned with Gen Z digital obsessions – for example, US department store, Macy’s, is creating floors within its stores where brands run experience events that consumers want to post on their Instagram accounts.

Whether banks should go so far as Macy’s and other retailers is hard to say. Gen Z is good at calling out brands which act unauthentically and may find banks that set up Instagram experiences as obviously a stunt. Don’t forget how this generation is financially conservative and thus strongly calls out for credible guidance. Banks can respond with financial education programmes designed for this generation including the money coaching sessions that banks like Capital One are offering

Banks do need to be careful about how they tailor their approaches because this generation’s attitudes can be hard to read. It is important to recognise that for Gen Z permanence is an important value. A recent study of British Gen Z-ers dug into the contradictory nature of this generation. While they can be extremely transient – for example, be mad about SnapChat only to suddenly dump it – Gen Z-ers value physical things they can touch and surround themselves with.

Gen Z presents a challenge to banks and other traditional customer service businesses because we are only now getting data on how they might want to access financial services and advice. There are contradictory traits about them, such as they live on smartphones and are supremely digital, and yet they are conservative and search for authenticity in brands. Both of these traits carry risks for banks. For instance, ensuring their digital services are sufficiently omnichannel and resilient because no Gen Z-er tolerates poor service or outages?

So, finally a short set of recommendations of how banks can reach out to Gen Z:

  1. Accept they are young with many still in school. Gen Z’s searching attitude can be answered by how banks get more involved in financial education in schools and colleges. Consider opening up pop-up or mobile bank branches in or near schools. It’s an old principle but get them when they’re young and keep the financial counselling part of your USP to this group when they open their first account with you
  2. Become known for your free education about everything from budgeting for your gap year to managing credit. Make study fun and available online and in-branch with after-hours food and drink
  3. Some banks are getting their first Gen Z customers. Run active programmes to involve them in everything from how you design apps to re-modelling bank branches. Recruit Gen Z-ers, rather than young Millennials, to mentor your staff on messaging and even how to take criticism. Quite simply there’s nothing better than first-hand knowledge of what works or doesn’t for this group
  4. Socialisation is a common trait of this generation. Research from the Center for Generational Kinetics has shown how Gen Z likes to share how much they are saving with their friends. Within the rules of financial confidentiality, support how some Gen Z customers will want to share their financial experiences online or even within your branch
  5. Be really smart on monitoring and measuring digital experiences and how your omnichannel strategy is smoothly and reliably delivered. Gen Z customers are sometimes called “screenagers” for good reason – they interact via screens all of the time and are hypersensitive to anything that doesn’t look right. Their instinct will be to leave and move onto something else if the digital experience is poor or interrupted.
  6. Saving, rather than spending, seems to be a financial driver for this generation. Investing in innovative savings products and services that automatically save money into accounts for clothes or dining
  7. Gen Z is likely to be the first generation to ditch plastic money – debit and credit cards – for managing cash and credit on their smart phone. So, ensuring in-branch self-service machines interact with smartphones for authenticating and accessing services,like updating digital wallets is key
  8. Be ready to offer access to a bank branch and a live person. Train your staff in consultation skills for this generation. Your people become vital brand advocates who this generation need to identify with and regard as authentic. See how in-branch systems can help augment your human capital.
  9. Remember Gen Z love online video. Leverage YouTube for how-to video advice on financial matters but also consider how you can offer face to face financial advice over live video
  10. Responsibly collecting and using data to anticipate the needs of customers who share a great deal of data about themselves is key.
  11. And finally, get ready for the next generation of customers. Already designated Generation Alpha or Gen Glass, these are people born after 2010 who are growing up in the world of Internet of everything when the online and offline worlds are totally blurred!
 ‘Bank to the future’ –what 5G means For high street banking

As recently discussed here in Global Banking & Finance Review, banks have a range of technology-driven options to radically improve the customer experience.  Digital transformation is impacting the industry in ways that would have hardly seemed possible just a few decades ago.  The impact of technology and increased connectivity is particularly evident on the ‘front line’ of retail banking, where pop-up branches, digital signage and ‘smart branches’ are transforming the way banks interact with their customers like never before.

One of the growing challenges for banks and retailers in general is that in this digital era, customers expect better, more connected services, whether they are dealing with the retailer online or in person. But, whichever digitally-inspired direction they move in, connectivity is the underlying enabling technology.

In A Wireless World, We’re All On A Pathway To 5G

One of the major drivers of technology-led change is the arrival of 5G wireless connectivity in the UK. With EE’s recent rollout of services in six cities, a pathway is emerging to its general availability. 5G will offer the speed, quality of connection and reliability banks need to bring customer-focused innovation to the high street. While the 5G rollout gathers pace, Gigabit-class LTE wireless technology will increasingly provide high performance connectivity, eventually working alongside 5G to offer a comprehensive high-speed network.

4G LTE technology has already carved a valuable role as the go-to connection for failover and Day-1 connectivity, but now, it’s is a viable option for primary wide area network connectivity as well.  This allows organisations to ‘cut the cord’ and replace multiple cable and fixed line providers – often stitched together to provide a branch network – with just one or two wireless providers.  In doing so, they can also realise a significant improvement in connectivity uptime.

Specifically, for banks that want to extend the reach, reliability, and speed of their branch networks without all of the complexity challenges of traditional wired connections, Gigabit-Class LTE can already provide as much as 80% of the value of 5G.

 The Digital Transformation Of High Street Banking

But where is this taking our banks? Along with every other sector that has built its success on the High Street, retail banking is looking to digital technology to change its relationship with customers for the better.

Innovation is arriving in many forms. The rollout of digital signage, for example, is making communication with customers more relevant, creative and timely. Similarly, digital initiatives that improve accessibility and widen the relevance and usefulness of branches are finding their way onto the high street. It’s increasingly possible to walk into a branch and get access to a financial expert via video link, instead of having to book an appointment with a member of staff in person.

As the traditional high street presence of banks gets smaller, the pop-up branch has emerged as a way to maintain services in places where a branch is no longer supported by demand. Pop-up branches offer many advantages over a permanent location, not least because they can be opened for a relatively short space of time, or placed in shared locations that are suitable to their local community.

Similarly, the pop-up concept has allowed new entrants to the industry with little or no high street presence to connect directly with consumers. Dozens, a finance startup, recently launched a one month pop-up branch on Harrow Road in Westminster, for example. On a wider level, Wiltshire Council has just announced support for a community bank serving the South West of England. The project could see pop-up branches opening in leisure centres and libraries.

This kind of useful, lateral thinking needs the right kind of enabling technology, and initiatives like these rely completely on secure, high performance data connectivity. In most cases, it’s not practical for a pop-up branch to organise fixed line connectivity for a limited period of time, or the connectivity cannot be shared with the location ‘host’ because of security or performance concerns. For these banks, wireless networks will provide the reliable, high performance and secure communications infrastructure they need when they open their pop-up branches.

Customers across every market sector value innovation that improves the retail experience. As banks try to differentiate themselves in a more competitive market, those that can offer new ideas that make it easier and more productive to use high street banks – in whatever form – will be better placed to retain and attract customers.


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