This is the decade of ESG and Climate Action – will the Nigerian insurance sector keep on missing the bus or hop on before it’s too late?
The Nigerian financial services industry has, much like its global counterparts, seen many industry wide disruptions usually driven by technology. These disruptions led to strong positive growth for the most agile actors and dire market share losses for those that failed to innovate.
For example, a cursory look at the Nigerian Banking and Insurance Sectors shows that the growth of internet access since the late 2000s piloted the emergence of “e-business”, which brought the proliferation of innovative digital banking (e-banking) services. Twenty years later and Nigeria has a booming fintech sector that has produced four unicorns – Interswitch, Paystack, Flutterwave and Opay. In contrast, this boom of e-business (or insurance sector equivalent – “insurtech”) had little effect on the Nigerian Insurance Sector.
Another disruptor on the global business landscape is the requirement for ESG – Environment, Social and Governance – good practice and compliance. ESG factors are essential for measuring sustainability within companies. ESG considerations in business has become a topic for action for business leaders around the world given the need to address global issues such as climate change, human trafficking and more, ensuring global actualisation of the sustainable development goals (SDGs).
Given the dual role played by the insurance sector in the economy, as the “risk manager” and an “investment vehicle,” there is certainly a pressing responsibility on insurers to take ESG risks into account in their operations.
In the build-up to COP 26, global insurance leaders committed to net-zero strategies and defined specific goals for climate neutrality individually or as part of industry voluntary initiatives such as the Net-Zero Insurance Alliance (NZIA) and the Net-Zero Asset Owner Alliance (NZAOA). This is in addition to the United Nations Environment Programme Finance Initiative (UNEP FI) launching the first ESG Guide for the Global Insurance Industry in June 2020 following their earlier roll-out of the Principles for Sustainable Insurance (PSI) in 2012.
Current ESG efforts within Nigeria’s financial services industry have mainly been driven by the banking and investment sectors with earlier efforts focused primarily on corporate social responsibility (CSR): supporting charitable initiatives, carrying out community engagements and reporting on their activities in annual sustainability reports.
In contrast to the progress being made by global insurance leaders and Nigeria’s banking sector, ESG efforts in the Nigerian insurance sector have hardly taken off, with current efforts still stagnating at the CSR level.
Following the Nigerian government’s pledge at COP 26 to reach net-zero emissions by 2060, (a highly ambitious plan considering the country’s heavy dependence on oil), and the President’s recent signing of the Climate Change Bill to Law, making Nigeria the first developing nation with legislation-backed annual carbon budgets to direct its path to cut emissions to net-zero, it is an opportune time for the Nigerian insurance sector to act.
ESG is here to stay and it will continue to become increasingly central to the strategies of firms across all sectors, as well as featuring strongly in the short and long-term plans of the government. Therefore, this is a clarion call to players within Nigeria’s insurance sector to “get on the bus” now! Key sector stakeholders should commit to definitive actions. For example:
- The sector regulator, Nigerian Insurance Commission (NAICOM), could provide a clear roadmap and guidance for sector-wide sustainability action.
- Insurers, reinsurers and brokers could implement individual actions that will embed ESG in their operations.
- Core sectoral umbrella bodies (e.g Chartered Insurance Institute of Nigeria, Nigeria Insurers Association, Nigerian Council of Registered Insurance Brokers etc.) should also aim to deepen the sector understanding of its sustainability issues and practices as well as leverage collaborative partnerships for greater impact.
It is vital that the Nigerian insurance sector immediately get involved, take a leading role and build on the significant ESG efforts being driven at the global insurance market level. Given the current climate emergency and rising socio-political tensions, embedding ESG considerations in underwriting and investment processes is necessary to adequately prepare for possible far-reaching disruptions in the local and global business landscape.
Not doing so could lead to lack of preparation when the inevitable impact of climate (stranded assets, increased floods and harsh weather events etc.) or legislative changes expose the insurance industry to increased claims, and changing customer needs.