Achieving Insurance Penetration in NIgeria
Low penetration of Insurance in Nigeria and the resulting slow growth in premium and profitability has been a major concern to the industry operators. In this report,
Ebere Nwoji presents experts’ views on how insurers can achieve higher penetration in the country.
Successive reports by local and international rating agencies point to the fact that Nigerian insurance industry has not taken its pride of place among global committee of fast growing insurance industries especially in the area of insurance services spread and penetration through mass patronage.
Using its own parameter as the industry’s regulator, the National Insurance Commission (NAICOM) affirms that the industry’s growth van has been on fast lane.
One of the key areas insurance industry in Nigeria is rated low in terms of growth pattern is in the area of spread and product distribution which in turn reflects in turn over, profit and contributions to the GDP.
Year in year out, the number of Nigerians buying insurance falls much below the number patronising other sister sub sectors in the same finance services sector like banking, pension and even stock market.
Today, the percentage of insurance penetration remains 0.5 per cent.This means that out of over 200 million population of the country, only 0.5 per cent of the entire population buy insurance.
Insurance Penetration Today
Even a compulsory insurance like the Motor Third Party Insurance backed by law, statistics by the Nigeria Insurers Association (NIA) show that out of 12 million vehicles plying Nigerian roads, only three million vehicles have genuine insurance cover despite the Nigeria Insurance Industry data base initiative of the industry meant to encourage Nigerians to buy the compulsory insurance.
These rating agencies’ reports insist that Nigeria is grossly under insured due to poor distribution of insurance products among its populace which has resulted in poor premium generation.
One of such reports released by the A.M Best few years back said considering its huge population of 200 million people and very low insurance penetration of less than 1 per cent, Nigeria is underinsured.
Operators’ views
The rating agencies are not alone in their views, the insurance industry operators themselves bear witness to poor penetration of insurance in Nigeria.
In one of the insurance forums in Lagos, the Chairman Mutual Benefit Assurance, Dr Akin Ogunbiyi said that 96 per cent of Nigerians have no insurance cover and that less than 5 per cent of the entire population of Nigeria have one form of insurance cover or another. This includes life insurance cover which in other countries, is fast becoming part of compulsory insurance.
At the NAICOM’s Micro Insurance Learning and Knowledge Workshop, held in Abuja, the former NAICOM Head of Strategy, Babajide Oniwinde, said that although insurance penetration in Nigeria was low, compulsory insurance policies would change the peoples’ perception.
He mentioned the compulsory insurances as Motor Third Party, Builders Liability, Healthcare Professional Liability, Group Life, and the Occupiers Liability Insurance .
Having made these observations both insurers and their regulator strongly believe that introduction of micro insurance would do the magic of accelerating insurance penetration in the country.
Apparently, insurance service in the country have remained the exclusive of the high class while the low class who dominates the population of the country has remained unserved.
This explains why NAICOM had insisted on the implementation and introduction of micro insurance .
Micro insurance guideline
NAICOM had in 2013 released the Micro insurance guidelines and staged the launch shortly after. But contrarily to the high hope on the Micro insurance, 10 years after, insurance penetration in Nigeria is said to have remained at below one per cent while life insurance sales in the country is still one of the lowest in the world. In a recent statistics on the industry Augusta &Co said only 0.5 percent of the population has insurance.
Data analyst, Dataphyte said only 3 per cent of Nigerians have health insurance policy provided by their employers and out of the figure men have 56.7 per cent coverage against 43.3 per cent that are female. Men also have three percent insurance on employer base insurance coverage while female had 1.99 per cent.
Industry Challenges
According to Leadway insurance in a recent report titled, “12 insurance statistics you should know,” major causes of low insurance penetration in Nigeria include inadequate access to information technology, weak regulatory frame work, lack of skilled personnel, poor knowledge or ignorance of insurance value by the masses and poverty or low standard of living.
Leadway in the report listed challenges confronting the industry as inappropriate pricing, poor product fit,inadequate distribution channels,poor public perception and confidence
Other challenges of the industry highlighted by other operators include: poor patronage of insurance products by Nigerians and inability of the regulator and government to effectively enforce the various compulsory insurances, continued faking of insurance certificates by touts at motor parks, licensing offices and ports despite the industry’s data base also does no small harm to the insurance sector.
Inability by operators to participate in the insurances of oil and gas and aviation as large chunk of businesses from these sectors still go abroad as well as the need to achieve success in micro and retail insurance penetration among Nigerians also posed challenges.
Perhaps the quest to address these challenges and break more grounds in insurance penetration was part of the reason the regulator few days back released three new guidelines on Takaful Insurance. Takaful insurance is one of the Micro insurances for the low income earning masses.
Operators and retail insurance
Former Chairman of NIA and former Managing Director Leadway Assurance, Mr Oye Hassan-Odukhale, had while addressing the media on insurance patronage by the masses and insurance penetration challenged Nigerian insurance managers on the need to improve on the level of insurance penetration in Nigeria by selling insurance products to a larger number of Nigerians in different parts of the country.
Hassan- Odukhale wants insurers to shift from the current trend of selling insurance to commercial entities and pay attention to retailing insurance by selling to a large number of people.
He said insurers were not taking advantage of large population of Nigeria in insurance distribution but were comfortable with their usual attitude of collecting millions of Naira premium from a single commercial entity to grow their premium income regretting that this did not encourage the growth of the industry.
According to him,this is so whereas Nigeria’s foreign neighbours were taking advantage of the huge population of the country to invest in insurance industry in Nigeria.
“Insurance is a business that you do with a large number of people. You want to make sure that you touch people one of the things we have been accused of in Nigeria is not reaching large number of Nigerians.That is low insurance penetration in the country.
“Nigeria has a population of over 200 million people; so where we look at it that the market is tough, people outside Nigeria see it as opportunity because they look at the number of people we have and if you can sell products to them you know you have penetrated the market.
“So it is a matter of time we are looking at it also that we need to look at our backyard. There are people to reach there, I look at it that we in insurance industry, we have been a bit lazy I will be frank with you .We are not trying to reach people enough with insurance. When it comes to overall premium income of insurance industry, it is not all that bad but most of them come through commercial insurance because you can sell one policy to an organisation for a couple of millions,” he stated.
He however acknowledged that distribution of retail insurance could be expensive therefore discouraging, adding that insurers need perseverance to conquer the situation.
Traditional channels of distribution
Managing Director Riskguard Africa and Technical Adviser to NAICOM on the
Market Development and Restructuring Initiative (MDRI), Chief Yemi Soladoye said at the current low stage of insurance spread in Nigeria, the regulators would have to recognise the non-tradition operators at least as distribution channels if it truly wants to provide access to mcroinsurance in Nigeria.
He listed some of these non traditional channels as existing multi-purpose cooperative societies in Nigeria which according to him have as many as 3.0million members across the country.
‘’Before the Federal Ministry of Agriculture introduced the CODAS (Cooperative Data Analysis System) there were 125,000 cooperative societies in Nigeria. According to the Bye Law 8(8) of the National Corporative Insurance Society (NCIS), it provides insurance among its members, had 103 registered Underwriters with over 70,000 Insureds as at 2012. This existing structure of the society provides easy access to Insurance by the cooperative societies who are over 3.0m in number,” he said.
He also noted that microfinance banks are the “low-hanging fruits” in microinsurance distribution. According to him,they have wider and grassroots spread than the Commercial Insurance Companies. He observed that as at December 2012, they had about 871 banks with over 20.0 million depositors, aggregate loan of over N70.0 billion and aggregate deposit of over N1.0 trillion adding that these channels needed to be recognised as distributors or providers to achieve access to microinsurance by the low-income people in Nigeria.
He listed other non traditional distribution channels as Faith-Based Organisation (FBOs) such as churches and mosques, churches and mosques,mutual and community based organisation (MCBOs) such as funeral, associations, age groups, market women association etc., insisting that they could be organised and recognised through their esusu and monthly contribution collectors.
He also listed other such channels as non-governmental organisations (NGOs) which he said tend to focus primarily on the low-income groups and are not primarily driven by profit.
He also said governments and ministries, departments and agencies of the government are veritable tools for the distribution and even provision of microinsurance.
He cited example with the Federal Ministry of Agriculture, saying that through its farmers groups such as Cassava Growers Association of Nig (CGAN), Fish Farmers Association of Nigeria, they can be good channels of distribution for micro insurance.
He said NAICOM could ride on Nigeria Health Insurance scheme in provision of micro insurance.
‘’There is need for NAICOM to collaborate with these MDAs in order to provide access to insurance mechanism by the low-income people in Nigeria’’, Soladoye said.
Also Civil Society Organisations (CSO), such as trade unions and artisans as well as
insurance providers themselves can be used to spread micro insurance services among Nigerians.He also said telecommunication companies will serve as the fastest distributors and enablers to Micro insurance distribution.
‘’It will serve as a trusted brand to which micro insurance products can be embedded. Nigeria has four major GSM telecoms companies with subscriber’s level of over 110.0m as at 2013,’’ he observed.
NAICOM’s industry growth virdict
On his assessment of the industry, the Commissioner for Insurance, Mr Sunday Olorundare Thomas said the industry has been recording positive ground shifting.
According to him, this could be noticed in the performance indices between 2020 to 2022.
He further revealed that the insurance market indeed remained profitable during the year, recording an overall industry average of 56.9 percent, maintaining a relative position of 57.7 per cent recorded in the corresponding period of preceding year.
The non-life segment loss ratio stood at 43.6 percent while the life business stood at 68.8 per cent, depicting a less profitable scenario comparatively over the same period. Consequently, the industry recorded an expansion to about N2.3 trillion assets at the end of first half year 2022, growing at a size of 12.0 per cent YoY.
Giving further breakdown of the statistics, he revealed that out of the total gross premium income, non-life segment maintained its primacy at 59.3 per cent.
“Motor insurance stood third at 14.8 per cent while Marine & Aviation, Gen. Accident and Miscellaneous reported a share of 12.3 per cent, 10.9 per cent and 8.9 per cent respectively. Life business on the other hand recorded 40.6 per cent of the insurance market production as its share contribution, gradually closes up. The share of annuity in the life insurance business stood at about 24.7 per cent, while individual life held a major driver position at 41.8 percent of the premium generated during the period.
“For the fourth quarter, the Commission said the gross premium figure in the fourth quarter 2022 represents a growth proportion of about thirty-six per cent quarter on quarter and indeed, about 18 per cent (17.8 percent) year on year, adding that this was a remarkable situation compared to the real growth (3.5 percent of Gross Domestic Product (GDP) over the same period and could attributable to consistent regulatory measures being carried out by the Commission, “he said.
