Achieving Financial Inclusion Via Micro Insurance
Ebere Nwoji writes on how insurance sector regulator, NAICOM plans to use micro insurance to achieve financial inclusion
Achieving financial inclusion in insurance sector is one dream, which every insurance sector operator, including the National Insurance Commission (NAICOM), wishes to realise.
Unfortunately, unlike in the banking sector, insurance operators are yet to fully achieve this, as the sector is yet to experience boom in terms of patronage. This is despite operators’ efforts to popularise insurance among Nigerians.
Financial inclusion according to economy experts, is the process through which a society has access to different financial services, such as credit, savings, insurance, payment and pension services as well as financial education mechanisms, with the goal of improving its material conditions of well-being.
As it affects insurance, economy expert, Mapfre Economics, said financial inclusion focuses on allowing lower-income groups of society to gain access to the products that enable them to protect their lives, health and assets, through the savings and loss compensation processes which are inherent part of insurance products.
Indeed, the term “inclusive insurance” is used to encompass many different approaches to reaching the unserved, underserved, vulnerable, or low-income populations in emerging markets with appropriate and affordable insurance products.
These range from micro insurance for people with very little disposable income to new products and services for an emerging middle class in Nigeria who have not been served by traditional insurance.
Disposition to Insurance
A close examination of Nigerians’ attitude towards patronage of various financial instrument used in day to day transactions shows that on daily basis, the banking halls of many banks from morning till close of work are being clustered with people demanding for one service or another.
Indeed, since after COVID-19 lock down, banking halls are so much clustered by customers that banks now keep canopies in front of their premises with seats to accommodate customers they could not allow immediate access into the banking halls or customer service department and allow them in when the number of those who queued inside have reduced.
During Yuletide, the queue often lengthens showing that Nigerians no longer need advertisement on the need to patronise banks as a safe way of keeping their money and other valuable treasures.
This is similar to what happened in the Stock exchange market before the 2008 melt down as many Nigerians were queuing up to buy shares of companies including those of insurance companies before the global meltdown doused their interest.
But coming to insurance as an arm of finance sector, the reverse is the case as despite the huge losses occurring in the air transport system, on roads, in the marine subsector, in various markets in the country and the loss of lives of many bread winners of families, even the latest menace of flood in many states, Nigerians have not seen the need to embrace insurance as a safe measure for their properties and lives just as they did in banking and stock market.
Insurers’ efforts
On their part, insurers are earnestly waiting for such a time when Nigerians will begin to embrace insurance and patronise insurance products as a means of safeguarding their lives and properties.
The insurance industry operators currently seem to be more determined to see this happen soon going by their intensifying efforts to see that Nigerians embrace insurance services.
They do this through their various groups especially Nigeria Insurers Association (NIA), the Nigeria Council of Registered Insurance Brokers (NCRIB) the Chartered Insurance Institute of Nigeria (CIIN) and even the industry regulator NAICOM.
For instance, NAICOM, NIA, NCRIB have extended messages of sympathy to victims of recent flood in various states and encouraged them to ensure protection against such future losses through insurance coverage.
During the incessant fire outbreaks in some markets, the NCRIB, through one of its past presidents, Mr. Ayodapo Shoderu extended sympathetic message to both royal fathers and to leadership of market men and women association of Nigeria as a way of familiarising Nigerians with insurance and encouraging them to patronise the industry.
NIA and the Chartered Insurance Institute of Nigeria (CIIN) are not relenting on their efforts in this regard as while NIA was targeting to block holes through which business opportunities of genuine insurance firm operators leak to the pockets of fakers in the ports and on third party motor insurance through the extension of its Nigeria Insurance industry data base in different parts of the country, CIIN said it was targeting schools to educate the youths who are the leaders of tomorrow on insurance.
NAICOM, in realisation of its position as a member of the Financial Literacy Steering Committee inaugurated by the federal government, went into action in a bid to accomplish the challenging task of spreading financial literacy among Nigerians.
Like every other regulator in the committee, NAICOM said it has set to contribute its own quota through the promotion of retail insurance especially micro insurance as a way of achieving financial literacy and inclusion among Nigerians.
Insurance industry, going by its present performance in Nigeria, can be described as the arm of the finance sub-sector of the economy that has suffered higher level of financial exclusion, judging by the few number of Nigerians that patronise the industry compared to banks.
Indeed, very many Nigerians are alien to insurance positioning, the industry and its activities as they consider them the exclusive of the elite.
Statistics of Insurance penetration
According to official statistics, life insurance penetration in the country has remained as low as less than one per cent while general insurance penetration is put at 1.5 per cent.
This is in contrast to what is obtained in Kenya with insurance penetration of over 3 percent and South Africa which has over 15 per cent.
Also insurance contributions to the gross domestic product (GDP) of the economy in Nigeria has remained as low as 0.7 per cent while official statistics said that less than five million out of 200million population of the country has insurance cover.
From the above statistics, it is apparent that there is high level of financial exclusion of Nigerians in the area of insurance, spelling the need for drastic action in spreading insurance awareness among Nigerians.
Efforts by NAICOM
NAICOM, going by its action, seems to have realised this early enough and has delved into action even before the launch of the financial inclusion or financial literacy strategy by the federal government with the launch of its Market Development and Restructuring Initiative (MDRI) in 2008.
The overall objective of the MDRI initiative, according to the former Commissioner for Insurance, Mr Fola Daniel, was to increase insurance penetration and reposition the industry to take its rightful place in Nigeria’s economy.
According to him, the cardinal objectives of MDRI is to implement in practical reality the enforcement of compulsory insurance policies as stipulated in Sections 64 and 65 of the Insurance Act 2003.
The MDRI was also meant to create 250,000 new jobs through the agency system, transform the industry to trillion naira premium income industry through penetration of insurance to the grassroots among others.
NAICOM had given itself December 2012 as target date to achieve these, but it could not totally achieve the target mainly due to late implementation of the MDRI; the commission has through the initiative gone far in the effort to ensure penetration of insurance to the doorstep of Nigerians even before the launch of the financial inclusion strategy by the federal government.
The Commission in this regard conducted a study on insurance awareness and patronage in Nigeria and discovered that the reason for high level of Nigerians’ apathy towards insurance and low patronage of the insurance industry by Nigerians is not really because of poverty level as assumed before now, but because of lack of access to insurance products and lack of knowledge of how insurance works and what insurance is all about.
Bearing this in mind NAICOM said its major concern is to ride on the van of micro insurance, which is currently making waves in other African countries to spread insurance education among Nigerians at the grassroots.
The commission at a media retreat held in Ilorin, Kwara State, said micro insurance or grassroots insurance has remained the most appropriate tool to achieve financial literacy among Nigerians because greater population of the country live in rural areas.
Daniel said NAICOM would allow development of micro insurance occupy its time and energy until the commission achieves financial inclusion in order to ensure that Nigeria’s level of insurance literacy and awareness comes up at least as it is in Ghana.
According to NAICOM, the main objectives of Micro insurance guidelines is to provide minimum standards for the conduct of micro insurance business in Nigeria.
The commission also said it was also meant to ensure consumer protection and establish duties and responsibilities of micro insurance operators and service providers.
Micro insurance
The Commission defined micro insurance as “insurance that is accessed by low income populations, provided by licensed institutions, run in accordance with generally accepted insurance principles, and funded by premiums.”
The Commission in the Micro insurance guidelines said micro insurance products should have features such as simplicity of terms and conditions of contract, as well as easy-to-understand language, accessibility of the products to the target market, ability of the products design to meet needs of the target market as well as the efficiency of the delivery channels of distribution to both the insurer and the policy holders.
NAICOM said any micro insurer that meets these conditions would definitely fit in the march to achieve financial literacy and inclusion among Nigerians through insurance.
Global financial inclusion statistics
Available records said that estimated 2.5 billion working-age adults globally have no access to the types of formal financial services delivered by regulated financial institutions. For example in sub-Saharan Africa, less than 30 per cent of adults have a bank account even though Africa’s formal financial sector has grown in the recent years. It is argued that as banking services are in the nature of public good; the availability of banking and payment services to the entire population without discrimination is the prime objective of financial inclusion public policy.
NAICOM noted that insurance would contribute its own quota in achieving financial literacy among Nigerians by using the sale and distribution of various insurance products to educate Nigerians on the nature of risks they face in their day-to-day living, how to make provisions for such risks through the purchase of insurance policies and how to use insurance to cushion the effects of demise of the bread winner of the family among others.
Consequences
THISDAY observed that owing to high level of financial exclusion of Nigerians to insurance products, Nigerians suffer losses without compensation. Example is the third party motor insurance policy which has as compensation between N500,000 and N1000, 000 compensation in case of death by the third party but which Nigerians have not been enjoying because of lack of knowledge. For instance, many Nigerians have fallen victim of hit-and-run vehicles but have resorted to their fate because they are ignorant of benefits and compensation from third party motor insurance or NAICOM’s provisions for victims of hit-and-run vehicles.
Also because of financial exclusion of Nigerian from insurance, many dependants of workers who died in the course of discharging their duties have been left to their own fate because of their ignorance of existence and benefits of group life insurance policy which the employers of workers in various organisations in the country ought to have put in place for their employees.
Relevance of Micro insurance
Given the success achieved by other African countries in finance literacy in the area of insurance, through micro insurance distribution, NAICOM and indeed stakeholders in insurance strongly believe that through proper implementation of guidelines on micro insurance, NAICOM and insurance operators would achieve success in the current effort to ensure insurance penetration in Nigeria through micro insurance.
Licensed Micro Insurance Firms in Nigeria
So far, the commission has licensed six Micro insurance operators. The firms are Goxi Micro insurance , CHI Micro insurance, Cassava Micro Insurance, Shagamu Micro Insurance, Credit Micro Insurance and Prudent choice Micro insurance and NoorTakaful insurance.
Besides these companies, not less than 12 intending Micro insurance operators have applied for licenses and the commission is currently processing the requests.
GOXI Micro Insurance Company, which was the first Micro insurance company in Nigeria, recently told the media that it has positioned itself to deliver unique insurance solutions to MSMEs, having stormed Lagos markets with “We Dey Ur Back” campaign to introduce traders to the various insurance packages created by the company to help educate traders on the benefits of insurance to their business.
During the sensitisation, at Oke Arin market, Lagos Island, the traders were delighted when GOXI representatives introduced the “GOXI Ma Business” to the traders at the market. They were excited because the insurance product provides them the opportunity to have access to affordable insurance packages, which addresses some of the major problems being faced by them.
The Business Development Manager, GOXI Micro Insurance Mr. Efe Isiorho, explained that traders could have their goods insured with as low as N500 under the GOXI Ma Business insurance package.
Lifeguard Microinsurance Limited said it opened for business in Lagos with affordable products to meet the needs of low-income earners within the state.
Managing Director of the company, Adeyinka Oyekunle, said the firm, a composite microinsurance firm was duly licensed by the National Insurance Commission (NAICOM) to be the first choice micro insurer in the industry to cater for unreached and the underserved population with the aim of deepening insurance penetration, creating wealth and driving economic growth.
Lifeguard Microinsurance boss said as a micro insurance firm, it would focus on providing cheap and affordable insurance products that meet the needs of its target market.
“Our target market at Lifeguard are the unprotected and the underserved population who are highly vulnerable and often overlooked by the conventional insurance operators. We are of the opinion that these category of the population require protection by the nature of their limited economic strength.
“They include Small and medium scale enterprises, Educational Institutions, Artisans, Trade unions, Clubs and societies, Alumni Associations, Security Companies, Microfinance Banks, amongst others.”
Speaking on the products, Oyekunle said the firm has introduced six best in class insurance products into the market – three each in Life and non-Life segments, namely: Supermamas & Superheroes, Credit microloan protection, Lifeguard family umbrella (Life).
The CHI Microinsurance Limited said it took off with plans to insure about 100 million uninsured grassroots dwellers.
Speaking at the unveiling of the firm at its office in Anthony, Lagos, the Group Managing Director/Chief Executive Officer (CEO), CHI Plc, Mr. Eddie Efekoha, said the firm would leverage the opportunities in the grassroots to make headway.
He promised that as a pioneer national micro-insurance outfit, the new firm would partner artisans, Small and Medium Enterprises (SMEs), Microfinance Banks (MFBs), cooperative societies, trade associations, among others.
He said: “There are about 100 million people in the micro segment of the nation’s economy. This presents opportunities for us as a firm targeted towards insuring that segment of the society.
Micro Insurance Target
Managing Director Risk Guard Africa, Mr Yemi Soladoye said the target group for Micro insurance in Nigeria were the farmers, the artisans, the market women in the rural, semi-urban and urban areas and the low-income people of Nigeria in general.
According to him, this set of people could be divided into those already using financial services (like Microfinance Banks) and those who do not.
He said in general, the low-income people all over the world are those who earn $4.0 per day and below and are further divided into two groups the Active poor and the Vulnerable poor.
The Active poor according to Soladoye are those earning between $2.0 and $4.0 per day while the Vulnerable poor are those earning below $2.0 per day.
He said since insurance is to satisfy the security needs of human beings and those earning below $2.0 per day are still struggling to satisfy the physiological needs of food, shelter and clothing, Insurance for them could only be provided through government aid/support.
He said the focus of commercial Microinsurance is therefore the low-income people earning between $2.0 and $4.0 per day.
In terms of their profiling, Soladoye, said the factors that made the low-income people in Nigeria enter into abject poverty were not the opposite of those that make them to escape from poverty.
According to him, the Low-Income people in Nigeria enter into poverty through ill health, accident, drought, fire disaster, social expenses and high interest private debts.
According to him, on the other hand, the poor people in Nigeria escape from poverty through bumper harvest, income diversification, land improvement and successful children.
