Home Insurance Digest Micro-insurance in Nigeria: A grossly untapped opportunity

Micro-insurance in Nigeria: A grossly untapped opportunity

CHRIS EBONG, Asst. Business Editor

Micro-insurance has been identified as key to Nigeria’s insurance sector growth given the country’s large population of about 170 million people.  According to experts, between 60 and 80million insurance potential customers are within the emerging middle class and by extension, fall within the micro insurance space.
According to analysts, out of 80million customer potential, between 55 and 60million are meant to be low, leaving just about 20 to 25million for middle income to upper middle income to wealthy group. This class is estimated at two to five million, implying that the core incurable band would, at least, be about 10 million.
While an insurance policy sales is between 2.5 and three million, representing about 25 to 30 per cent of potential middle to upper middle income market as at 2014, premium per capita in Nigeria is less than US$9 compared with the whole of Africa, pegged at US$66 with that of South Africa hovering around US$1,005 in contrast to the Mint and BRIC countries of Mexico with US$223, India at US$52, Turkey  which stands at US$169, Brazil and China, at US$443 and US$201, respectively.
Insurance industry contribution to the Nigeria’s Gross Domestic Product (GDP) has been considerably low with less than 0.5 per cent in the rebased economy which put Nigerian economy ahead of that of South Africa, despite frantic effort by the country’s regulatory body, the National Insurance Commission (NAICOM) to open up the market for growth through deliberate policy framework and developmental initiatives.
Despite the current economic down turn facing the nation due to unavoidable dwindling prices of crude oil in the international market, Nigeria, in the past decade has witnessed impressive economic growth. For instance, in 2005, the country was named as one of the “next 11’ countries (N11) by an investment bank, Goldman Sachs, in its report. The countries in this category, according to that report, are those that have a high potential of becoming the world’s largest economies in the 21st century, along with the BRICs.
Interestingly, insurance market development is anchored by a country’s economic development; experts argued that in Nigeria such development has not yet reached the low income bracket.
As part of its financial inclusion activities, NAICOM with the German Agency for International Cooperation, Deutsche Gesellschaft fur Internationale Zusammenarbeit – GIZ); Making Finance Work for Africa (MFW4A), and the Munich Re Foundation, had organized the “International Micro insurance Conference Learning Session Nigeria”.
The Nigerian Insurers’ Association (NIA) and the Micro insurance Network were partners of the event with about 250 stakeholders from Nigeria’s insurance sector and related parties, discussing options for the promotion and practical implementation of micro insurance.
According to report, the event was an incubator for new ideas to increase (micro) insurance penetration in the country.
At the event, experts discussed the findings of two important studies and developed ideas for future activities. Analyzing micro-insurance in Nigeria, the study noted that financial exclusion was high, and the gap between the urban and rural populations was wide.
Concerning assets, the banking sector was named the second largest in Africa but the World Bank data stated that over half of the adult population was still completely financially excluded, while less than one per cent of Nigeria’s population has insurance, ranking behind the Republic of the Congo and far from the level of other N11 countries such as the Philippines with seven per cent.
“Not all Nigerians participate in the economy and we need to recognise the role of insurance in enabling participation”, Ms. Arunma Oteh, former Director-General of the Securities and Exchange Commission (SEC), which is supervising the financial sector, said in her address, adding that “access to micro-insurance is crucial in the country’s transformation process”.
The report quoted Mr. Denis Garand, one of the worlds’s most experienced actuaries in the field of micro-insurance, as saying that the market is lacking good products and trust”.
The President of the Micro-insurance Center, and author of the African “Landscape Study”, Michael McCord, said: “Without good micro-insurance, we will not see sustainable development”.  McCord summarised key findings from another study, “The Landscape of Micro-insurance in Africa as follows: “An insurance industry not recognizing the potential of the micro-insurance market, products that do not meet the needs of the poor and a lack of trust are the main reasons spoiling market development”.
In his own contribution, the Director-General of the NIA, Thomas O.S., said:  “Only some five per cent of the insurance companies in Nigeria are currently providing micro-insurance. But this is not the way to go! The market is just starting. The industry has acknowledged that establishing trust is one of the key challenges to increasing market penetration. If the client manages to pay premiums, we have to be able to pay claims. We are aiming to work on this and to bypass Ghana’s insurance penetration within the next two years”.
Regulation must create an enabling environment. To make micro-insurance more affordable, the NIA requires NAICOM to lower market entry barriers through lower capital requirements or tax benefits. The example of the Philippines has shown that this can have a substantial positive impact on market development.
Furthermore, lack of knowledge remains a problem. Jointly with donors and the industry, NAICOM aims at working on education for providers as well as clients to raise awareness. A better understanding of the market is key. The conference is just a start and we will need follow-up events
“We also have to use technology, develop innovative products and – even more importantly – develop a long term strategy” said Jide Oniwinde, Deputy Director, Corporate Strategy of NAICOM. The Commission has developed a work plan to address these issues, to adjust regulation and to tailor policies to the needs of providers and clients. Oniwinde welcomed companies wanting to use mobile phones as a distribution channel, noting that this has been proven to have high potential to boost market development in countries like Kenya and Ghana.
The discussions clearly showed that single actors alone will not succeed in making insurance available for the poor and that success will only be achieved through close cooperations, e.g. between the regulators and the insurance industry. Good distribution channels supported by donor organizations, while micro-insurance experts will enable the development of good products, which provide value for the client and profitable business for the industry.
The Vice Chairman of the Munich Re Foundation and one of key facilitators, Dirk Reinhard, said: “Nigeria is a hidden micro-insurance giant. This event is an important continuation of a process that started with the Nigerian country diagnostic study in 2012. It is great to see that NAICOM and the NIA with the support of donors such as GIZ are ready to tap the market and overcome the challenges”.
At the industry event in Lagos recently, the Executive Director of Leadway Assurance Limited, Mrs. Adetola Adegbayi, said: “Insurance education, the economy and development of human capital index are key factors in achieving the desired insurance growth”, contending that human capital development index is even lower than insurance contribution to the GDP of the nation’s economy. She charged insurance sector to embark on human capital development index.
“Out of 80million customer potential, between 55milion and 60million are meant to be low leaving just about 20 to 25million for middle income to upper middle income to wealthy group. This is about two to five million. So, the core incurable band would, at least, be about 10 million.” Adegbayi stated.
She decried the fact that despite the overwhelming figure, estimated insurance policy sales is between 2.5 and three million, representing about 25 to 30 per cent of potential middle to upper middle income market as at 2014.

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