Micro Insurance: Ten Years After

Ten years after the launch of micro insurance initiative in Nigeria, Ebere Nwoji examines its performance in bringing low income Nigerians under insurance coverage

The development of micro insurance operations in Nigeria was one of the major reforms put up by the National Insurance Commission(NAICOM)  a decade ago to achieve financial inclusion in insurance sector and ensure insurance penetration in the country. That was precisely in September 2014.

The year was indeed a year of several policy reforms targeted at achieving growth within the sector through popularisation of insurance among Nigerians.

Other policy reforms put forward by the commission then were  implementation of compulsory insurances, creation of insurance awareness among Nigerians, promotion of retail insurance, the introduction of Risk Based Supervision, migration to International Financial Reporting Standard (IFRS) from the Nigerian Generally Accepted Accounting Principles (NGAAP); Market Conduct Reforms, Claims Settlement Reforms, Financial Inclusion Strategy and Combating Financial Crime among others.

All these are geared towards developing the industry and improving the general perception about insurance. 

Ten years after these reforms, a critical examination of the micro insurance reforms as a way of reaching the unreached with  insurance services and serving the unserved and the underserved poses a big question on how far the industry operators have used the micro Insurance products to bring low income earners in the country into insurance net.

Meaning of Micro insurance

Micro insurance by way of its simple definition is insurance that offers coverage to low-income households or to individuals who have little savings. It  is tailored specifically to lower valued assets and compensation for illness, injury or death.

It is a division of micro finance that looks to aid low-income families by offering insurance plans tailored to their needs. It usually takes lower premium from the buyers.

Nigeria like some other African countries such as  Uganda, Namibia, Ghana,  10 years back embarked on the long journey of developing its own micro insurance market through several efforts.

But a close look at the level of insurance penetration especially at the grass root shows that we are not there yet. For instance, despite these micro insurance products, Nigerian at the grassroots still carry their own risks by themselves when the unforeseen happens.

This is so but insurance products are there to cushion the effects of loss on low income earners.

Instead of transferring their risks to these micro insurers, low income earners still suffer the loss of their handsets without help for replacement. In some cases they pay for micro insurance premium but were denied cover due to ignorance.

For instance, many petty traders who borrow small loan from micro finance banks pay for insurance even when there was no insurance firm in the contract picture to cover the loan, 

At various motor parks, transport company owners collect micro insurance premium from passengers without remitting the money to any insurance firm.

The danger there is that though the passenger paid for insurance cover for the trip, in the event of any accident, the passengers bear the risks by themselves despite the premium they paid to the transport company owners.

Analysts said for micro insurance initiative to achieve its objective, there is need for monitoring and supervision to protect the insuring micro insurance public.

Effort by NAICOM

The insurance sector regulator, NAICOM was at the background of these efforts with the release of guidelines on micro insurance institutions followed by inauguration of 14 -man steering committee made up of representatives of stakeholders across the financial services market to assist in making the micro-insurance initiative successful.

According to NAICOM, the guidelines were meant to strengthen the collaboration between insurers and micro-finance banks, helping traders and artisans and other low income earners to access loans underwritten by participating insurers.

NAICOM  also said the guidelines had the objective of providing minimum standards for the conduct of micro-insurance in the country.

The committee, headed by the then Director-General of the Nigeria Insurers Association (NIA) Sunday Thomas who later became the Commissioner for Insurance had representatives of NAICOM, Central Bank of Nigeria, FSS2020, NIA, German Cooperation (Giz), National Health Insurance Scheme (NHIS).

After these 10 years, a close examination of performance of the Micro Insurance Initiative shows that its performance has been on a slow pace as could be seen from number of micro insurance institutions that are operating in the country.

Operators’ contributions: 

THISDAY noted that shortly after the release of the guidelines, insurance operators contributed in no small measure to promotion of micro insurance in the country.  Many of them formed alliances with mobile telephone operators to distribute insurance products to Nigerians.

Their eagerness to boost micro insurance in Nigeria during the period  saw a company like Mutual Benefit establishing the first insurance Franchise in Nigeria. Also both the operators and the regulator  pursued the Takaful insurance project with great vigour.

To make the microinsurance initiative more effective, the Commission in 2020 permitted Microinsurance window operations for conventional insurance companies with conditions such as, the insurer shall seek and obtain approval of the commission to transact microinsurance business. Board resolution approving the establishment of a micro insurance department.

Applicant shall apply for window micro insurance National Operation License.

The department shall be headed by an experienced insurance officer not below the rank of an AGM, who must possess a minimum of seven years post associate of Chartered Insurance Institute of Nigeria qualification or a minimum of 10 years working experience in a technical department of an insurance institution.

As untapped as the   market is, analysts said the introduction of the guideline is an indication that the Nigerian Microinsurance sector is awakening and considering low-income insurance distribution. It also clarifies the scope of Microinsurance for the operators, stating that the sum insured under a Microinsurance policy(ies) shall not be more than N2,000,000 per person per insurer.

The guideline provides that the policies and products must be easily deliverable to the target market through unconventional delivery methods such as micro insurance agents, cooperative societies, mutual benefits associations, micro finance institutions, faith-based organisations, non-governmental organisations, osusu/adash groups, age grade groups, mobile payment system and other registered associations.

National Insurance Commission Act

NAICOM Act is the law establishing NAICOM. NAICOM is the primary regulatory authority overseeing the insurance industry in Nigeria, including microinsurance. It sets the rules and standards that microinsurance providers must adhere to, ensuring consumer protection and financial stability.

The Insurance Act of 2004 governs all aspects of insurance in Nigeria, including microinsurance. It establishes the legal framework for insurance contracts, premium rates, and the licensing of insurance companies.

In the Guideline, NAICOM prescribed capital categorisation for Micro insurance company. The categories include: Unit Microinsurer

A unit Microinsurance company is an insurance company that operates within a local community. This insurance company is aimed at getting across to low income earners within a specific time frame in a local community to allow the company get across to as many  persons as possible in the given community before a subsequent approval to operate on a bigger scale. Insurance operation of this nature are capped in a 36month time frame. The minimum capital base for setting up a unit microinsurance company is N40 million which is further categorised into two thresholds namely: a general insurance class at N25 million capital base and a Life class at N15 million capital base.

National Microinsurer

A National Microinsurance company is a microinsurance company with operations in six states within at least three geopolitical zones in Nigeria. Insurance companies who meets these criteria can apply to operate as a national microinsurance company. The minimum capital base for setting up a national microinsurance company is N600 million which is further categorised into two thresholds namely; a general insurance class at N400 million capital base and a Life class at N200 million naira capital base.

A State Microinsurance company is an insurance company with operation in at least three states of the federation with three different branches in one state. The company branches should be in in different local government areas around the state. The minimum capital base is N100 million. State microinsurance companies can be further categorised into two thresholds namely, a general insurance class at N60 million naira capital base and a Life class at N40 million naira capital base.

So far NAICOM has licensed eight Micro insurance companies and four takaful insurance firms.

The micro insurance firms are Goxi Micro insurance , a composite firm, LifeGuard Micro insurance, Prudent  Choice Micro insurance, Creditstar Micro insurance, Cassava Micro-insurance, Chi Micro-insurance, Ally Micro-insurance , Dot (Atom) Micro-insurance, Nassure Micro-insurance,New Dawn Micro insurance Sagamu Micro insurance and Yes Micro insurance.

The Takaful insurance companies are Crown Takaful Insurance, Hilal Takaful Nigeria Ltd,Jazz Takaful Insuranceplc,Noor Takaful as well as Salam Takaful  Insurance Ltd.

Sector analysts said the Micro insurance is yet to meet its expectation as many Nigerians are still outside insurance net.

Some of the insurance agents and marketers who spoke to THISDAY, said they are yet to achieve breakthrough in the marketing of the products. According to one of the agents, Sandra Onyeji,the cost of transport, inflation and low value of naira have worked against achievement of success in marketing the micro insurance products. products.

She said though people are clamouring on digital marketing not all consumers o Micro insurance products are digital native people.

She cited example of rural dwellers who are major targets of Micro insurance products saying even here in Lagos most of her clients were  averse to digital transaction let alone rural dwellers.

In her view, it will still take a good number of years for them to effectively  push Micro insurance products digitally.

She said for now transport costs and other issues constitute constraints to the business.

She however said going by present response from the field, there is future for Micro insurance business in Nigeria.

Industry analysts said awareness was key in popularising micro insurance in Nigeria.

The analysts said many Nigerians don’t know the inherent benefits and values in micro insurance because of lack of awareness.

As NAICOM partners  Chartered Insurance Institute of Nigeria( CIIN)  in training 1000 youths on insurance this should serve as opportunity for the industry managers to involve the  youths in pushing micro insurance and other insurance products to every nook and cranny of the country.