By Henry Uche
Although a temporary 90-day suspension of United States tariff hike has paused the imposition of additional taxes on Nigerian exports, the existing 10% baseline tariff still remains in effect.
The lingering trade pressure, experts note, continues to reverberate across key sectors of the Nigerian economy, presenting both challenges and strategic openings for the insurance industry as it adapts to shifting global trade dynamics.
Beyond trade disruptions, the tariff shock introduces new layers of risk exposure for businesses and underwriters alike, demanding a strategic rethink of coverage models, claims forecasting, and sector resilience in an increasingly volatile global economy.
In an interview with insurance expert and public affairs analyst, Mr. Ade Adesokan, he highlighted that this crucial shift in trade policy comes at a time when Nigeria’s insurance sector has exhibited impressive growth and resilience. He suggested that this development could reshape the industry’s future, presenting both challenges and new opportunities in the months ahead.
Current Impact of Insurance on Nigeria’s Economy
The Nigerian insurance market has recently shown impressive output, according to the National Insurance Commission’s (NAICOM) 2023 bulletin for insurance market performance. The industry recorded a total of N1.003 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 N615.1 billion (61.3%) to the total premium volume, while the life segment accounted for N388.1 billion (38.7%), with group life policies and annuity products serving as significant drivers of growth.
Impact of US tariff hike on the sector’s growth
The US 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.
Sectors more affected
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 consolidate cargo to manage costs. Meanwhile, 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.
What is in for insurers?
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.
Other issues of concern
The tariff hike may accelerate the already existing trend towards 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. And for the health of the entire insurance industry as a whole, the sector’s response to these changing trade dynamics will be crucial.
What is in it for insurance practitioners?
Insurance practitioners will need to enhance their analytical capabilities to model the complex interplay between tariff impacts, export behaviors, 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.
NAICOM, NCRIBA
Yes, the apex regulator, NAICOM, and other trading 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. Insurance providers that can effectively communicate their value proposition in mitigating trade-related risks may find growth opportunities even amid the uncertainty.
Impact on economy
It affects the entire economy. Meanwhile, 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.
Other vital information: Usefulness 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.