Insurance and Banking in Nigeria: Any Relationship?

Under the financial services sector, banks and insurance companies fall within the same tripod, alongside the capital market. As the Central Bank of Nigeria continues in its reform of the banking sector, the National Insurance Commission {NAICOM} has also not been left behind in the formulation of policies and other regulatory frameworks. However the question agitating the minds of industry watchers is why despite efforts put in place, the insurance industry has not occupied the ideal position in Nigeria. Elsewhere, insurance provides a leadership role to other segments of the financial sector, with many banks being owed by insurance companies. What is the role of insurance in the development of any economy, particularly in Nigeria where insurance seems to be crawling instead of running. While appreciating the professional efforts already in place to change the trend, it is expedient to guide the public on what relationship if any, exists between the banks and insurance. According to Mr. Adeyemo Adejumo, managing director of Continental Reinsurance plc, “traditionally, the financial services sector is commonly classified along the lines of banking and non-banking institutions with insurance taking a pride of place in the latter class.” He explained that “globally, banking and insurance have evolved as playing leading roles in the activities of the financial services industry, stressing that over the years, there have been arguments and counter arguments about the ‘ideal’ relationship that should exist between banking and insurance practices and this has also been recognized by governments around the world.” The Continental Reinsurance boss who delivered a paper on the relationship between banks and insurance at a public forum, said that in the United Kingdom for instance, the Financial Services Authority (FSA) was established as the single regulatory body for both the banking and insurance industries, in recognition of the fact that although some differences may exist in their operation, to a great extent there exist some meaningful relationship between them. He said the Financial Services Act of 1999 has far-reaching and major implications towards the movement of globalization in the banking industry.  The bill first and foremost, he said, allows mergers between different sections of the industry that were previously not allowed, a situation which  allowed insurance companies to merge with banks. 
Adejumo explained that in Canada, for instance, the Bank Act and accompanying regulations contain specific rules pertaining to chartered banks and their involvement in the insurance business. The Insurance Business (Bank and Bank Holding Companies) regulations authorize banks to sell certain insurance products closely related to their lending businesses. Banks may also sell other types of insurance through subsidiary companies, subject to certain restrictions. He explained that as a result of the globalization and liberalization of the financial services industry, many financial institutions are participating in the business activities of other financial institutions, banks and insurance companies in particular. “Several European countries have made considerable regulatory changes regarding the banking and insurance sectors. Although regulatory changes vary from country to country, there has been a pan-European trend towards the ‘Universal Bank’ and the limitations of the past no longer exist. Banks are now able to operate across a broader range of activities, including insurance, via legally independent risk carriers. The insurance companies and banks are not competing within just the life insurance industry and banking industry respectively anymore but within the wider financial services marketplace,” he said. The reinsurance expert stressed that in Nigeria, following the Central Bank of Nigeria’s approval-in-principle of the adoption of universal banking, it released Guidelines for the Practice of Universal Banking in Nigeria in December 2000.
According to the guideline banking business in Nigeria was defined as “the business of receiving deposits on current, savings or other accounts, paying or collecting cheques drawn or paid in by customers, provision of finance, consultancy and advisory services relating to corporate and investment matters, making or managing investment on behalf of any person and the provision of insurance marketing services and capital market business or such other services as the Governor of the Central Bank of Nigeria which may, by gazette, designate as banking business.” This implied that banks are free to choose which activity or activities to undertake, whether it is money or capital market activities or insurance marketing services or a combination thereof and are expected to comply with the guidelines specified for such activity or activities.
Consequently he said, a bank will be regulated based on the type of activities it engages in.
This situation led to the issuance of a single uniform license to all conventional banks which are