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Saturday, 15 June 2013 00:00
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Nigeria still under-insured almost a century after

THOUGH insurance activities began in Nigeria as long ago as February 28, 1921 when Mr. C.C.  Aldrige, a Briton, established Royal Exchange Assurance Company as the Nigerian branch of Royal Exchange Assurance Company, United Kingdom, its 92 years of existence has witnessed low patronage across the country.

As the Commissioner for Insurance and chief executive of the National Insurance Commission (NAICOM), Fola Daniel, noted, the level of insurance penetration must be increased significantly in Nigeria to the level that majority of the people would have one form of insurance cover or another for the nation’s economy to grow as expected.

He explained: “From our internal studies at NAICOM, Nigeria would attain rapid and sustained economic growth if it deepens its insurance penetration whereby more members of the population buy one or more of the available insurance products”.

Contrary to most optimistic assumptions that the insurance industry will be the next growth sector, he pointed out that the nation’s insurance industry’s performance, despite all efforts at reforms, remains below its potentials as currently only 800,000 adult population have insurance policies.

For the average Nigerian, insurance is an elitist enterprise, for those who live in affluence, and not for the down-trodden, who struggle daily to make ends meet, especially in a society where a high number of people are unemployed, with many eating from hand to mouth. Also, a large number of those employed are in the informal sector. Thus, to most people, the insurance industry is seen as that belonging to the well-to-do in the society.

But NAICOM, apparently aware of the immense benefits and opportunity in the sector, has stated that its reform programme is geared at opening up and developing the insurance market at the grassroots, and by extension, increase the sector’s contributions to the Gross Domestic Product (GDP), hence the need for micro-insurance.

Deputy Director in charge of Authorisation and Policy, NAICOM, Mr. Leo Akah, said micro-insurance covers the “insurance products that offer coverage to low-income households,” stressing that as a division of microfinance, micro-insurance looks to aid poor families by offering insurance plans tailored to their needs.

However, how efficient this has been tapped into and worked in Nigeria, remains a subject of controversy for analysts.

More so, micro insurance typically refers to insurance products designed for the low-income individuals. The word ‘micro’ represents the relatively small transaction size or lower premiums, a concept similar to micro finance with small ticket loans. Micro insurance is insurance that is accessed by low-income population, and provided by a variety of different entities, but run in accordance with generally accepted insurance practices,” he stated.

Again, at a seminar organised by NAICOM for Finance and Business Editors in Ilorin, the Kwara State capital, on February 7, 2013, he disclosed that NAICOM has finalised a strategy to incorporate micro-finance and as important vehicle for deepening insurance penetration in the country.

Speaking on the theme: “The Micro Insurance Initiatives,” he stressed that the reforms being embarked upon by NAICOM are intended to primarily reinforce the Federal Government’s Vision 2020 of deepening insurance penetration to become the insurance industry of choice among emerging markets in terms of capacity, safety, transparency and efficiency.

He stated that, already, as part of the efforts in 2012, NAICOM is collaborating with GIZ Germany and other developmental agencies in the conduct of a country-wide diagnosis study on the viability of micro-insurance in Nigeria.

“One of our goals was to generate at the end of the exercise, a document that will enable us take evidence-based decision on the issue of micro-insurance in Nigeria and also serve as a public resource in its own right. The report reveals huge potentials among the low income groups and has consequently been adopted by NAICOM as a working document for the development of micro insurance framework in Nigeria,” Daniels stressed.

Continuing, he noted: “The Commission is at the final stages of developing a reliable micro-insurance framework with clear rules for investment and inherent flexibility with a view to giving insurance providers the needed charity and freedom to use innovative means to reach this large but underserved segment of the market.”

Nonetheless, for the country to achieve its objective of ensuring that majority of the people have one form of insurance cover or another, it is expedient that it embraces micro-insurance.

According to  Director General, Nigerian Insurers Association (NIA), Mr. Sunday Thomas, though the Nigerian social economic population is huge and growing, it is rural and relatively poor with 70 per cent living below poverty line, with low level of literacy, and high rate of unemployment estimated at about 23.9 per cent (IMF 2011), while majority of the employed are in the informal sector of the economy.

For him, underwriters should increase their performance by partnering with the demand side of the micro insurance market to create the needed products; institute programmes that will ensure effective and sustainable awareness creation; develop programmes that enhance financial, and especially insurance literacy. Others are for underwriters to ensure that management of micro insurance business should be in a simplified form; ensure that procedure for claims settlement are not cumbersome, and that payment must not be delayed.

“They must equally be prepared to invest in the activities of the consumers,” he explained.

To grow micro insurance, Thomas harped on the fact that underwriters must embark on : “Extensive awareness creation and publicity; create the market for micro insurance; intensive capacity building in the area of micro insurance; significant investment in the stakeholders’ education is imperative; ability to mobilise large number of participants, and extensive market research to enhance the supply of relevant products among others.”

On the part of the media, he advocated strong public awareness creation saying that; “One of the key demands of the industry from the media is the promotion of insurance literacy so that the general public can understand the characteristics of insurance products and make use of them in an appropriate manner.”

Consequently, insurance education should help customers understand the difference between the variety of risk management tools they can find on the market and the benefits derivable from them.

Thomas maintained even as he identified challenges of the underwriters to include: High operational cost, possibility of moral hazard, fraud and adverse selection, lack of data for informed decision, adaptation of policies for use by the rural population, inefficiency in the premium collection system, and management and control of micro insurance business.

Mr. Yemi Soladoye, Managing Director, Risk Guard-Africa Nigeria Limited, stated in a report submitted to NAICOM at the end of the visibility study for sales of micro-insurance, that most Nigerians have been misled for so many years believing that Nigerians do not like insurance.

In his words: “The report revealed that 40 per cent of Nigerians don’t have any opinion about what insurance is all about, either negative or positive. We were asking them what is insurance, what does an insurer do and others, but they don’t know even at micro-insurance level, some of them were saying maybe if you want to buy a car and your money is not enough then you can go to an insurance company to help balance the money, you can imagine people with such understanding. When we were doing enforcement of compulsory insurance, God is my witness, 100 per cent of people who don’t have insurance were ready to buy insurance right at the spot.”

He also noted that in some countries, before license is given to open a branch in the urban centre, you will be given a target of the number of branches you must open in the rural areas. He stressed that it would increase the level of insurance patronage if regulators in Nigeria can do likewise.


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