By Chiamaka Ajeamo [email protected] 08060655687
Results from the Enhancing Financial Innovation and Access (EFInA) 2020 survey on Access to Financial Services in Nigeria have revealed that only 2 per cent of adult Nigerians are insured and have any form of insurance, while 18 million are uninsured.
Interestingly, the report has it that the 18 million uninsured have shown interest in microinsurance hence, this presents a door of opportunity for micro underwriters to expand their customer base and generally boost insurance penetration level in the country.
Highlighting reasons for the lack of insurance adoption by Nigerians, the report disclosed that some respondents blamed low disposable income, ignorance of the benefits of insurance, not considered as a priority and lack of target-oriented products and services to suit their specific needs.
“The truth is that most insurance products that we have currently do not address the needs that we have in Nigeria. As the country is evolving, there is a need for insurance companies to adjust products to meet demand,” Ayokunle Olubunmi, Head, Financial Institutions, Agusto & Co., said.
Experts on several forums have affirmed that insurance serves as a critical tool for not only reducing poverty but also for assisting those who emerge from poverty to manage their risk to avoid sliding back into poverty. This is important because of the financial uncertainties that provoke poverty are better managed with insurance. But despite the important role the industry plays, it is appalling to know that its uptake is extremely low in Nigeria; a country with a vibrant population.
Consequently, this has kept insurance penetration rate in the country at less than 1 per cent in the last decade.
According to EFInA’s data that put Nigeria’s adult population at 106 million (18 years and above), 103 million are outside the insurance adoption as only 2 per cent or 2 million adults were insured as of 2020. “Only 2 per cent of Nigerian adults are insured, but 18 million uninsured adults say they would be interested in microinsurance. Out of the 40 per cent insurance inclusion target set by the Central Bank of Nigeria (CBN) for 2020, only 2 per cent was achieved as the target fell short by 38 per cent,” Ashley Immanuel, CEO of EFInA, said.
Only recently, Mr. Jim Ovia, Founder/Chairman of Zenith Bank Plc, in a statement explaining why majority of Nigerians do not see insurance policy as a priority, said that the principal issue, “we see in the Nigerian market is that per capita income of the people is very low and people tend not to take insurance as a priority against other things related to them”.
The above corroborates the fact the 18 million uninsured adult Nigerians told EFInA of their interest in microinsurance products and services.
Meanwhile, the high cost of living in Nigeria which is not matched by the country’s per capita income due to the fragile economic growth has remained lower than the population growth rate since 2015, meaning that more Nigerians are becoming poorer, the report stated.
“With the unemployment rate at a record high of 33.3 per cent in the fourth quarter of 2020, and a population growth rate at an average of 3 per cent per annum, Nigeria’s 2021 first-quarter Gross Domestic Product (GDP) growth of a paltry 0.51 per cent is anything but undesirable.
“Inflation rate which measures the rate at which the prices of goods and service increase in Nigeria eased to18.12 per cent in April down slightly from a four year high of 18.17 per cent in March.
Before Covid-19, about 80 million of Nigeria’s 200 million people lived on less than the equivalent of $1.90 a day. The pandemic and population growth could see that figure rise to almost 100 million by 2023, says the World Bank.
“While the impact of COVID-19 is easily attributed to the recent economic woes in Nigeria, an evaluation of the country’s macro-economic indicators before the pandemic shows Nigeria was grappling with low growth before the pandemic triggered a recession and created large financing gaps, including dollar shortages and inflation.
“Economic growth in Africa’s most populous nation averaged 1.2 per cent between 2015 and 2020. The problem with that is the population grew two times faster at an average of 2.6 per cent per year.
Notwithstanding the low opportunity for many Nigerians to boost their income level, analysts advise that insurance; a vital financial service should be seen by Nigerians as a priority because it assists to mitigate risks, enhance financial stability, improve trade and commerce activities that can result in sustainable economic growth and development.
The report further disclosed that, access to basic financial services like a savings account, credit and insurance means that a country is financially included adding that; Nigeria recorded a 64.1 per cent financial inclusion rate in 2020, representing a 35.9 per cent or 38.1 million adults, an increase from the 36.6 million in 2018 that were excluded.
“A higher exclusion rate in Nigeria could lead to a poorer population as lack of access to credit and insurance puts them at an economic disadvantage.”
Analysts who have understudied the insurance market have stressed that microinsurance can be explored to further boost its penetration due to its suitability to educating and building trust among Nigerians.
According to the Head, Coronation Research, Guy Czartoryski, “For the insurance sector to experience radical growth, the lessons learnt from India and Ghana where insurance was rolled out to tens of millions of people on micro basis must be domesticated in Nigeria”.
Czartoryski, while noting that microinsurance serves as a crucial tool for increased insurance penetration, recalled that India’s 3.69 per cent penetration and Ghana’s Compound Annual Growth Rate (CAGR) of 6.9 per cent between 2013 to 2017, were achieved out of robust micro-insurance policies adopted by both countries. He added that the roll-out of micro-insurance with the aim of developing financial inclusion was crucial to familiarising and educating the Nigerian market about insurance products, stressing that this would be critical to the sector’s growth and contribution to GDP.
Already, the National Insurance Commission (NAICOM), Nigeria’s insurance regulatory body, in its revised micro-insurance guidelines which took effect from January 2018, defined micro-insurance as a form of insurance developed for low-income populations, with low valued policies provided by licensed institutions, run in accordance with generally accepted insurance principles and funded by premiums.
“Microinsurance products are insurance products that are designed to be appropriate for the low-income market, low valued policies, micro and small-scale enterprises in relation to cost, terms, coverage, and delivery mechanism,” the Commission stated. Basically, micro-insurance can cover any insurable risk, including illness, accident, death, property damage, unemployment and others at a fair price for low-income earners.
The guideline further stated that “for a national microinsurer, the minimum capital base is N600 million, while the general business will be N400 million, with life practitioners requiring N200 million.
For a state microinsurer, the minimum capital base is N100 million, with general business operating with N60 million, and the life arm having N40 million.
A unit microinsurer, on the other hand, must have a minimum capital base of N40 million; with the general arm functioning with N25 million, and the life arm operating with N15 million”.
For insurance experts, the opportunities arising from microinsurance is not limited to increased insurance penetration, but also include the provision of social benefits, reduction of poverty and ease of securing small business loans.