For Nigeria's insurance industry, the tariff hike represents a significant test of its adaptability and resilience, contends Ade Adesokan.
The recent 14% tariff hike imposed by the United States on Nigerian exports has sent ripples through various sectors of the Nigerian economy, with the insurance industry facing unique challenges and opportunities in its wake.
This significant trade policy shift comes at a time when Nigeria's insurance sector has demonstrated remarkable growth and resilience, potentially altering the industry's trajectory in the months ahead.
The Nigerian insurance market has recently shown impressive performance, according to the National Insurance Commission's (NAICOM) 2023 bulletin for insurance market performance. The industry recorded a total of ₦1.003 trillion in gross premium written, marking a substantial 27% growth compared to the previous year. This growth significantly outpaced Nigeria's overall GDP growth rate of 3.46% during the same period, underlining the sector's expanding economic importance. The non-life segment contributed ₦615.1 billion (61.3%) to the total premium volume, while the life segment accounted for ₦388.1 billion (38.7%), with group life policies and annuity products serving as significant drivers of growth.
Against this backdrop of sectoral prosperity, the U.S. tariff hike introduces new variables into the insurance landscape. While oil and mineral exports, which constitute over 90% of Nigeria's exports to the United States, are excluded from the tariff increase, the remaining export categories now face heightened cost pressures. This targeted application of tariffs creates a complex risk environment that insurance providers must navigate carefully.
Undoubtedly, marine insurance, which covers goods in transit, stands as one of the most immediately affected insurance lines. With Nigerian exporters facing an additional 14% cost burden on applicable goods, shipment values and volumes may fluctuate, potentially altering premium calculations and risk assessments. Insurance providers specializing in marine cargo coverage will need to reassess their pricing models to account for changing trade patterns, as exporters might reduce shipment frequencies or consolidated cargo to manage costs.
Trade credit insurance faces perhaps the most direct exposure to the tariff's effects. This specialized coverage, which protects businesses against non-payment from buyers, may see increased demand as exporters seek financial safeguards against the heightened uncertainty in the U.S. market. Simultaneously, insurers might observe an uptick in claims if Nigerian exporters' American customers delay payments due to the absorbed tariff costs or if contracts are canceled altogether. Insurance providers will need to recalibrate their actuarial models to account for these elevated risks, potentially leading to premium adjustments across the sector.
The property and casualty insurance segment may experience secondary effects as manufacturing facilities and agricultural processing plants tied to U.S. exports reconsider their asset utilization and expansion plans. Insurers may need to revisit property valuations and coverage limits if production scales shift in response to changing export economics. Casualty insurers, particularly those offering product liability coverage for goods destined for American markets, might need to adjust their underwriting approaches to account for potential changes in export volumes or product modifications designed to offset tariff impacts.
Business interruption insurance emerges as another critical area of potential impact. Nigerian businesses heavily reliant on U.S. export markets may face operational disruptions or reduced revenue streams, potentially triggering claims under business interruption policies. Insurance providers offering this coverage will need to carefully assess their exposure to affected industries and potentially revise their terms, conditions and pricing strategies to maintain profitability while supporting policyholders through this transition.
The tariff hike may accelerate the already existing trend toward export diversification in Nigeria, a development that carries significant implications for the insurance industry. As exporters explore alternative markets beyond the United States, insurers will need to develop expertise in assessing risks associated with these new trade corridors and destination countries.
This geographical diversification of risk may ultimately benefit insurers through portfolio spread, though it requires investment in market intelligence and risk assessment capabilities for new territories.
For the health of the insurance industry as a whole, the sector's response to these changing trade dynamics will be crucial.
Insurance practitioners will need to enhance their analytical capabilities to model the complex interplay between tariff impacts, export behaviours and claim patterns. Products may need to be redesigned to address emerging risks and customer education will become increasingly important as exporters seek guidance on navigating the new trade landscape.
The National Insurance Commission (NAICOM) and other associations, including NIA and NCRIB have essential roles to play in monitoring the situation and providing appropriate guidance to the industry.
Regulatory flexibility may be necessary to allow insurers to innovate in response to changing market conditions while maintaining adequate consumer protections and financial stability.
The tariff development also comes as Nigeria's insurance penetration rate remains relatively low at approximately 0.5% of GDP, compared to the African average of 2.8%. This presents both a challenge and an opportunity, as the increased risk awareness stemming from trade disruptions could potentially stimulate greater insurance adoption across the economy.
Sign up for free AllAfrica Newsletters
Get the latest in African news delivered straight to your inbox
Insurance providers that can effectively communicate their value proposition in mitigating trade-related risks may find growth opportunities even amid the uncertainty.
Minister of Finance and Coordinating Economy, Mr Wale Edun, has assured Nigerians that the government is committed to mitigating any adverse effects of the tariff increase, emphasizing the limited scope of affected exports. This governmental approach, coupled with ongoing consultations with U.S. counterparts and the World Trade Organization, may provide some stability to the market as negotiations proceed.
For Nigeria's insurance industry, the U.S. tariff hike represents a significant test of its adaptability and resilience.
The sector's impressive growth trajectory provides a foundation of strength from which to address these challenges, but strategic agility will be essential.
Insurers that can successfully recalibrate their risk assessments, product offerings and customer engagement strategies stand to emerge stronger from this period of trade uncertainty, potentially contributing to the broader economic resilience that Nigeria seeks to build in an increasingly complex global trade environment.
Adesokan is a public affairs commentator
