How to Save Nigeria's N500 Trillion Insurance Industry [opinion]

Last week, I passed by the ever-busy Computer Village and saw shop after shop loaded from floor to ceiling with laptops. I thought to myself, "What happens if there is an incident, say a fire? Do they have insurance?" I shuddered to think of the sheer loss. Insurance is not new in Nigeria, but plenty of 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 such a long time, the sector is still struggling to overcome the twin problems of ignorance and acceptance. They are related.

This implies that if potential customers can appreciate the true value of the sector, it will automatically lead to more widespread acceptance. And this will naturally boost patronage, spur the growth of premium generation, and precipitate more meaningful contributions to the nation's gross domestic product, GDP. Conversely, as acceptance grows, the estimation and value of the sector will rise and spread.

Solving one issue will resolve the other, and vice versa. Ignorance does not mean people cannot define insurance. It is more a lack of understanding of the way it works or how it is supposed to work. Insurance, according to Investopedia, is "a contract, represented by a policy, in which a policyholder receives financial protection or reimbursement against losses from an insurance company. The company pools clients' risks to make payments more affordable for the insured."

Investopedia explains that there are different types of insurance policies. Life, health, homeowners, and auto insurance are the most common forms of insurance. The core components that make up most insurance policies are the deductible, policy limit, and premium. The truth must be said, the Nigerian insurance industry is enormous. Augusto & Co's 2022 insurance report reveals that the gross premium income, GPI, stands at over N520 trillion.

This places the country 62nd in the world today. With a GDP of $443 billion as of 2020 and a population of 210 million, Nigeria is easily the largest economy in Africa. Yet, the insurance penetration rate is lower than one percent. Herein lies the problem. Take car insurance, for instance. The Nigeria Insurance Association, NIA, January 2022 report indicates that only 3.4 million out of a total of 12 million registered vehicles are insured. Also, less than five percent of Nigerians have health insurance of any sort. It is not a pretty picture.

This is the real challenge; how to get more people to sign up for insurance. The issues are long-standing and seemingly insurmountable. In my mind, it is at once a problem of policy and process; an issue of promotion and progress; and a matter of personnel and professionalism. And since they are only seemingly insurmountable, they can be overcome, resolved, and improved. With close to 100 million Nigerians living below the poverty line, it is no surprise that many cannot afford to pay insurance premiums under the current arrangement.

The bulk of the population lives from hand to mouth, so there is little room for anything else when the bare essentials are barely taken care of. Only affordable and flexible insurance with a clear highlight of the core benefits will appeal to Nigerians. What would work is something that does not tax the pocket or the mental capacity of the man on the street. People who find funds to load recharge cards, make sports bets, and go on the occasional weekend treat, can find the money for premium if it makes sense to them.

When people talk of ignorance of insurance, it is beyond a lack of knowledge of its existence. It is a question of trust. True mass acceptance is necessarily a function of ubiquitous access and trust. Once people see why, nothing can stop them from investing in the future through insurance. This brings us right 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. The current cosmetic makeup does not cut it. The industry needs a major makeover. The regulators must look at policies that will fundamentally change the way the industry conducts its business, engages with its customers, and, in fact, who can engage in the business.

The call is for a truly functional microinsurance scheme. In the recent past, Nigeria had mobile insurance offered by a telco, but it failed. No! It was not because it was not viable, it was due more to resistance and regulatory issues. Think of how impossible mobile money has looked in Nigeria and how it has thrived spectacularly in other climes (read Kenya). The only real difference was policy formulation and the regulatory framework. Mobile money is only now 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 perils in exchange for regular premium payments appropriate to the likelihood and cost of the risk involved." According to the IAIS, the term refers to servicing a specific income segment in emerging market jurisdictions where the insurance markets are not well-developed.

Nigeria fits this bill to a T. To be fair, experts argue that micro-insurance works in much the same way as conventional insurance, except that it is targeted at low-income households, specifically the working poor, who have few or no financial reserves and incomes that fluctuate considerably.

The National Insurance Commission, NAICOM, the regulator of the insurance sector, has explained that it is actively pursuing the execution of various regulatory and market development initiatives intended to uplift the insurance sector to a global standard. Industry watchers insist that the Commission is doing well.

I believe that the Commission must now take another look at the micro-insurance market. It is currently barely scratching the surface. To get going and truly thrive, it needs favourable policies, legal and regulatory adaptations, and sector-wide institutional capacity building.

Firms that will provide the service must understand how it has evolved. The license fees should be affordable for operators. Naturally, there would be close monitoring of the operations to prevent abuse and ensure that they stay on the straight and narrow.

While typically, microinsurance can be delivered through a variety of institutional channels, including licensed insurers, healthcare providers, community-based organizations, and non-governmental organizations, in Nigeria, the ubiquitous reach of telecom services, the grassroots know how of microfinance banks, and the depth of academic institutions, make them good candidates to drive such a scheme.

Eromosele, a Corporate Communication professional and public affairs analyst lives in Lagos.