Promoting Financial Inclusion via Micro Insurance

Achieving financial inclusion through insurance services patronage is a task operators and the National Insurance Commission must achieve to be relevant in the finance services sector of the economy, writes Ebere Nwoji

Financial inclusion according to experts in finance refers to efforts to make financial products and services accessible and affordable to individuals and businesses regardless of their personal net worth or company size.

It strives to remove the barriers that exclude people from participating in the financial sector and using these services to improve their lives.

Financial inclusiveness among Nigerians especially via insurance products is one task that has remained a tall order for insurance sector operators and, the National Insurance Commission (NAICOM).

This is because Nigerians’ alienation to insurance services is as old as insurance business itself in Nigeria. Many Nigerians detest insurance including the compulsory insurances preferring to bear their risks on their own.

This has resulted in poverty and demise of many businesses especially the Micro, small and medium scale businesses. Because they lack of insurance coverage, once risk occurs, such businesses automatically closes down due to lack of cushioning effect.

Against this backdrop, NAICOM has been at the forefront of fighting to boost financial exclusion among Nigerians.

Past helmsmen of the commission initiated the effort but in recent times, NAICOM seems to have more than ever determined to ensure financial exclusion among Nigerians through insurance.

The commission is riding on the van of Micro insurance in particular to achieve this all important inclusiveness among Nigerians. It is also employing technology to achieve wide spread of insurance services among Nigerians.

Though past commissioners for insurance emphasised much on achieving financial inclusiveness through insurance. The incumbent insurance commissioner Mr Olusegun Ayo Omosehin seems to be more prepared, ready and determined to achieve this.

Indication to his level of preparedness and determination to achieve this is his statement when he took up the mantle of leadership of the umbrella body of insurance underwriters the Nigerian Insurers Association (NIA) as the 25th chairman.

Omosehin in his investiture speech said,  “I have chosen the theme of my tenure as: Expanding the frontiers of Insurance through Partnerships and Stakeholders’ Engagement.”

“To this end, we will actively pursue the insurance awareness and publicity project under the auspices of the Insurers’ Committee. We invite all stakeholders in the insurance industry to join us in this journey as we seek to entrench insurance culture and expand the dragnet in line with the central theme.” Omosehin said.

As insurance commissioner, Omosehin recently sealed partnership with the police for the enforcement of compulsory insurance especially Motor Third Party insurance.

In the partnership, the Nigerian police force, said it has set up a special team headed by the Deputy Inspector General operations to oversee the enforcement of the compulsory insurance.

Within the space of his appointment as insurance commissioner, he has initiated several ways of expanding insurance coverage among Nigerians.

Before now there was assumption that a major reason Nigerians are far from insurance patronage was high level of poverty among the people.

But a research conducted by NAICOM with a German agency Giz, proved this assumption wrong.

The result of the research showed that Nigerians’ indifference to insurance patronage was due to unavailability of insurance products and services, especially to the middle class.

Promoting Micro Insurance

This, analyst said, has brought to the fore the need for promotion of micro insurance services as the surest way of achieving financial inclusiveness in insurance industry. NAICOM defined micro insurance as insurance that is accessed by low income population, provided by licensed institutions, run in accordance with generally accepted insurance principles, and funded by premiums.

Over the years, the exclusion of rural dwellers from insurance services was blamed low turn over for the industry, while the sector’s contribution to the nation’s GDP was very minimal and insignificant.

This is quite unlike the banking sector where both city and rural dwellers patronise banking services and willingly visit banks for one transaction or another.

A flash back at Nigerians’ experiences during the past years, especially in the finance sector shows that many Nigerians no longer need advertisement to patronise banks as a safe way of keeping their money and other valuable treasures.

Their positive attitude to banking is usually glaring in most bank premises during the yuletide.

At various festive periods, there are usually long queues of Nigerians waiting to either withdraw money from their accounts for the festive period or transfer money to their relatives for Christmas or salah festivals.

The long queue is not peculiar to few banks but virtually all branches of banks in the country, including those in less developed parts of the country showing that even Nigerians at the grassroots value banking services.

The ATM machines are not exempted from the rush as the length of queues in the various ATM service points surpassed those of customers collecting money from the counter.

This shows the improved level of knowledge and understanding of Nigerians towards banking services.

This is similar to what happened in the stock market few years before the 2008 melt down on global financial system, 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. Despite the huge losses occurring in the air transport system, marine, road transport, incessant fire outbreaks in local markets and building collapses, Nigerians have not seen the need to embrace insurance as a safe measure for their properties and lives.

Indeed, despite ugly experiences of Nigerians on emerging risks like flood rendering many homeless every rainy season, kidnappings, riots resulting to wanton destruction of lives and properties, as experienced during the #endSARS protest, Nigerians still remain indifferent in their attitude to insurance services.

Insurers’ Dream and Efforts

Against this backdrop, insurers dream of such a time when Nigerians will begin to embrace insurance and rush insurance products as a means of safeguarding their lives and properties.

But the operators determined to see this happen, as in their various groups, each regime of the groups’ governing council always include mass education in their agenda. 

They believe that it is only when they succeed in making Nigerians see the value in insurance through insurance education that they can willingly buy just as they buy banking services.

Bearing this in mind, the insurers are more determined to change the narrative.

NAICOM, as the regulatory authority of the sector and the Chartered Insurance Institute of Nigeria (CIIN) as the educational arm of the industry have been at the vanguard of this. 

NAICOM said the only way to go in achieving this is to deepen insurance penetration in the grassroots through Micro insurance.

To achieve this, it evolved a medium term plan for insurance market development tagged Market Development and Restructuring initiative (MDRI).

Since the launch of the initiative, which main target was to extend insurance services to the doorstep of every Nigerian, the commission has been evolving new marketing channels targeted at pushing insurance products to the doorstep of every Nigerian.

The latest efforts in this regard being the licensing of intermediaries tagged web aggregators. It has before now launched guidelines for micro insurance institutions and has been advertising licenses .So far, the commission has licensed about six operators of micro insurance.

The CIIN on its part is targeting mass education of the youths through its various impacts in secondary schools and tertiary institutions in the country. The institute has succeeded in convincing government to include insurance in curriculum of senior secondary schools and is fighting to ensure that it is extended to junior secondary schools. 

Through the support of NAICOM, the institute has equipped insurance department of many universities and other tertiary institutions just as it has been sharing insurance textbooks in various secondary schools. These efforts are geared towards creating awareness and enthroning the regime of insurance literacy among Nigerians.

Employing Marketing Channels

Few years back, NAICOM announced its licensing of web aggregators to help in pushing insurance products to buyers. The commission announced that the minimum share capital of the web aggregators was N5 million with a registration fee of N3 million.

The web aggregators are insurance intermediaries that provide a comparison of insurance products and also the prices of different classes of insurance products to consumers.

Before licensing the web aggregators, NAICOM has been licensing micro insurance institutions.

NAICOM is utilising its position as a member of the Financial Literacy Steering Committee of the federal government to accomplish the challenging tax of spreading financial literacy among Nigerians, especially in the area of insurance.

Insurance industry, going by its present performance in Nigeria, can be described as the arm of the finance sub-sector that has suffered highest level of financial exclusion, judging by the number of Nigerians that patronise the industry and those excluded in insurance services.

Indeed, very many Nigerians are alien to insurance services thereby positioning the industry and its activities as exclusive of the elites.

According to official statistics, life insurance penetration in the country is still less than 1 per cent   while general insurance penetration is less than three percent. 

This is in contrast to what is obtained in Kenya with insurance penetration of over 3 per cent and South Africa, over 14.8 per cent.

Also insurance contributions to Nigeria’s gross domestic product (GDP) has remained below 1 per cent while less than 5 million out of over 200 million population of the country have insurance cover.

Micro Insurance Guidelines

Meanwhile, NAICOM in its 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.

THISDAY observed that due to high level of financial exclusion of Nigerians to insurance products, Nigerians suffer losses without compensation. An example is the third party motor insurance policy which has between N15000 and N3, 000 000 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.

Analysts Recommendations

Analyst have recommended that NAICOM should insist on the proper implementation of the guidelines, “so that those licensed for micro insurance business underwriting would restrict themselves to the business and leave those of the conventional insurers. They should be made to know their target market and concentrate on them taking their insurance products to exactly where the target market resides and not to mix up issues by selling micro insurance products to city dwellers. They should not allow the problem that saw the end of many micro finance banks to happen to them as many of them left micro businesses they were supposed to finance and started financing multimillion naira businesses.”

“Again, NAICOM should ensure that operators of the micro insurance business do not in their product design engage in recycling of existing products that do not suit the grassroots. They should not engage in what many conventional insurers do, which is recycling of existing products in the name of product design if they must achieve success.

“Most importantly, NAICOM should ensure credibility and integrity among micro insurance product distributors to build confidence among early adopters of micro insurance. The commission should do this by ensuring that the micro insurance operators promptly pay genuine claims and that their marketers are not ‘hit and disappear’ marketers, which is part of the problem that killed the interest of many Nigerians in patronising conventional insurers, “they added.