Chiamaka Ajeamo,[email protected]
Although insurance sector has survived as one of the key drivers of the economy across the world, its contribution, overtly and covertly- has remained less impactful particularly in Nigeria.
Yet the industry provides a solid framework which can be leveraged upon for sustainable growth. In spite of this critical role in the economy, available statistics show the sector is underperforming in Nigeria, due to several challenges which include low penetration.
For instance in its latest survey of Nigeria’s insurance sector, Coronation Research, revealed the industry with a total current capital of N300 billion has not grown in real terms in the last 10 years when compared to its peers with similar economic hurdles.
The report further disclosed that Nigeria’s insurance penetration, pegged at 0.31 per cent over the years, is appalling when juxtaposed with countries like India with a penetration of 3.69 per cent despite having similar Gross Domestic Product (GDP) per capita with Nigeria.
The abysmal level of the sector’s penetration in a country of over 200 million people, shows that the potential is largely untapped, according to experts.
Worried by the poor insurance penetration in the country, some financial experts, researchers and stakeholders who have understudied the market, 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 as a crucial tool for increased insurance penetration, said 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, was achieved out of a robust microinsurance 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, adding that this was critical to the sector’s growth and contribution to the GDP.
Already, the National Insurance Commission (NAICOM), Nigeria’s insurance regulatory body, in its revised microinsurance guidelines which took effect from January 2018, defined microinsurance 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, microinsurance can cover any insurable risk, including illness, accident, death, property damage, unemployment and others at a fair prices for low income earners.
The guideline further stated that, “for a national microinsurer, minimum capital base is N600 million, while the general business will be N400 million, with life practitioners requiring N200 million.
For a state microinsurer, 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”.
Challenges
Microinsurance still has a long way to finally take root in Nigeria due to many challenges stunting its growth. According to a 2016 survey on access to financial services in Nigeria, conducted by Enhancing Financial Innovation and Access (EFInA), microinsurance space in Nigeria is still at an infancy stage, as out of 96.4 million adults, only 0.3 million use microinsurance products.
The report further revealed that despite the slow uptake of microinsurance by Nigerians, 32.1 million adults indicated interest to using microinsurance.
This finding creates a significant opportunity for operators to increase the adoption of microinsurance in Nigeria, especially for the informal sector which is yet to be keyed into financial inclusion.
Aside the awareness level of the scheme which is still very low, a major problem hindering the growth of microinsurance is the fact that it is a low-priced, high-volume business where its success and market sustainability is hinged on keeping the transaction cost low. Numerous constrictions such as lack of political will, dearth of public funds and the absence of feasible business model make microinsurance look unappealing.
Another challenge is that many microinsurance schemes are battling to reach profitability and sustainability because of the high fixed and marginal costs usually invested in the schemes, which only attracts low premiums.
Also, the cost involved in marketing microinsurance is quite expensive and with the extremely low purchasing power of the consumers, it is not easily allocated to the targeted consumers. Other issues frustrating the growth of microinsurance include; weak customer value proposition and products packaging, inadequate understanding of how the microinsurance scheme works in Nigeria as well as inefficient distribution channels.
The opportunities
It is in line with the numerous opportunities that microinsurance policy tends to offer the Nigerians and economy as a whole, that the managing director/CEO, Achor Actuarial Services Limited, Pius Apere, advised NAICOM to convert mainstream insurance companies that fail to meet up with the new minimum capital requirement to microinsurance firms instead of totally liquidating them.
Apere noted that such move would assist to increase of the number of microinsurance providers and equally accelerate insurance penetration at the grassroots in the country as well as contribute significantly to the country’s GDP.
According to him, the opportunities arising from microinsurance is not limited to increased insurance penetration, but also include provision of social benefits, reduction of poverty and ease of securing small business loans.
He said “The local population who purchase the micro-insurance will benefit from having insurance at a lower cost than a traditional/conventional product. Micro-insurance enables individuals who would not otherwise be able to afford it to purchase some degree of financial protection. Those on low incomes are more vulnerable to adverse events, having fewer savings to support themselves in times of need. Without insurance, individuals may have to use savings, or sell assets or livestock which they have. It also helps to avoid the need for such individuals to rely on money lenders, who may be expensive and unscrupulous. Some provision of micro-insurance cover can be especially reassuring to families, particularly where the state welfare support system is limited”.
On the way forward for the microinsurance scheme to thrive in the country, Apere stated that technology should be effectively adopted to deepen its operations.
“Operators and regulators should leverage on technology especially, telecommunications to reach the masses with financial inclusion message to improve the level of financial literacy in Nigeria,” he said.
He stated there is the need to intensify the level of awareness of the scheme and this should be accompanied by a larger focus on the consumers experience, prompt settlements of claims, customer education and orientation as well as mass marketing.
He warned operators not to assume that the target group segment has adequate knowledge of their products and services, instead, they should create improved and sustained education, awareness programme that will broaden their understanding of their services and improve on their level of financial literacy adding that, education programmes targeted at specific market segments are likely to yield better results than mass awareness creation solely, through the media. He declared that when all these measures are put into place, it will accentuate the knowledge and buy-in of microinsurance policies among low- income earners thereby, bringing growth to the insurance market in general.