Last week, I passed through the ever-busy computer village and saw store after store full of laptops. I thought to myself, what if there is an incident, say a fire? Do they have insurance? I shivered thinking of the sheer loss.
Although insurance is not new to Nigeria, most people disagree with its acclaimed importance. Records show that the insurance business has existed in one form or another in the country since 1958. What is amazing is that after so long the industry is still struggling to overcome the twin problems of l ignorance and acceptance. They are connected.
This implies that if potential customers can appreciate the true value of the sector, it will automatically lead to wider acceptance. And that will naturally boost the customer base, drive the growth of premium generation, and precipitate more significant contributions to the country’s Gross Domestic Product (GDP).
Conversely, as acceptance increases, the esteem and value of the sector will increase and spread. Solving one problem will solve the other and vice versa.
Ignorance doesn’t mean people can’t define insurance. Rather, it’s a lack of understanding of how it works or how it’s supposed to work.
Insurance, according to Investopedia, is “a contract, represented by a policy, in which a policyholder receives financial protection or reimbursement against loss from an insurance company. The company pools customers’ risks to making payments more affordable for policyholders.
Investopedia explains that there are different types of insurance policies. Life, health, homeowners and auto are the most common forms of insurance. The basic elements that make up most insurance policies are the deductible, the policy limit and the premium.
The truth must be said, the insurance industry in Nigeria is huge. Augusto and Co in its Insurance Report 2022 reveals that Gross Premium Income (GPI) stands at over N520 trillion. This places the country 62nd in the world today.
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With a GDP of $443 billion in 2020 and a population of 210 million, Nigeria is by far the largest economy in Africa. However, the insurance penetration rate is less than 1%. This is the problem.
Take car insurance for example. The January 2022 report from the Nigeria Insurance Association (NIA) indicates that only 3.4 million out of a total of 12 million registered vehicles are insured. Also, less than 5% of Nigerians have health insurance of any kind. It’s not a pretty picture.
This is the real challenge; how to get more people to buy insurance. The problems are old and seemingly insurmountable. In my mind, it’s both a policy and a process issue; a matter of promotion and progression; and a matter of personnel and professionalism. And since they are only seemingly insurmountable, they can be overcome, solved and improved.
With nearly 100 million Nigerians living below the poverty line, it is no surprise that many cannot afford to pay insurance premiums under the current arrangement. Most of the population lives hand to mouth, so there is little room for anything else when the bare necessities are barely taken care of. The only type of insurance that will appeal to Nigerians must be affordable and flexible with clear highlighting of key benefits.
What would work is something that doesn’t affect the pocket or the mental capacity of the man on the street. People who find funds to load top-up cards, do sports betting, and occasionally feast on weekends can find money for a bounty if that makes sense to them.
When people speak of ignorance of insurance, it is more than a misunderstanding of its existence. Its a question of confidence. True mass acceptance is necessarily a function of pervasive access and trust. Once people understand why nothing can stop them from investing in the future through insurance. This brings us back to education, awareness and access.
The only way to be assured of a future is for the insurance industry as a whole to undergo radical change. Current cosmetic makeup does not cut it. The industry needs a major makeover.
Regulators need to consider policies that will fundamentally change how the industry conducts business, engages with its customers, and, indeed, who can engage with the business. The call is for a truly functional microinsurance system.
In the recent past, Nigeria offered mobile insurance through a telephone company, but this failed. Nope! It wasn’t because it wasn’t viable, it was more due to resistance and regulatory issues.
Think how impossible mobile money has seemed in Nigeria and how dramatically it has flourished in other climates (read Kenya). The only real difference was the formulation of policies and the regulatory framework. Mobile money is just beginning to look feasible and viable. What changed? Simple policy and regulatory requirements. But I digress.
The International Association of Insurance Supervisors (IAIS) defines microinsurance as “the protection of low-income people against specific risks in exchange for regular premium payments commensurate with the likelihood and cost of the risk incurred”.
According to the AICA, the term refers to serving a specific income segment in emerging market jurisdictions where insurance markets are not well developed. Nigeria fits this bill to a T.
To be fair, experts say microinsurance works much the same as conventional insurance, except it targets low-income households, especially the working poor who have little or no financial reserves. and incomes that fluctuate considerably.
The National Insurance Commission (NAICOM), the regulator of the insurance industry, explained that it is actively pursuing the execution of various regulatory and market development initiatives aimed at elevating the insurance industry to a global standard. . Industry watchers insist the Commission is doing well.
I think the Commission must now review the microinsurance market. It is currently barely scratching the surface. To get off the ground and truly thrive, it needs supportive policies, legal and regulatory adaptations, and sector-wide institutional capacity building.
Companies that will provide the service need to understand how it has evolved. License fees must be affordable for operators. Naturally, there would be close monitoring of operations to prevent abuse and ensure they stay on track.
While typically, microinsurance can be provided through a variety of institutional channels, including licensed insurers, healthcare providers, community-based organizations and non-governmental organizations, in Nigeria the pervasive reach of telecommunications services , the local know-how of microfinance banks and the depth of academic institutions, make them good candidates to conduct such a program.
Today, India, China, Brazil and South Africa are the main markets for microinsurance. Nigeria can quickly join this number.
Admittedly, this will not happen overnight, but we have to start. Essentially, there should be ease of access, market fit and prompt payment.
Nigeria’s N500 trillion insurance industry can be saved. You have to pay attention to the little things.
Eromosele, corporate communications expert, writing from Lagos
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