Confidence Level, Unexciting Products Hindering Insurance Penetration

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Despite efforts to improve awareness of the need for insurance cover among Nigerians, the level of insurance penetration remains abysmally low, but operators are hopeful that things will change. Olaseni Durojaiye writes on the efforts to change the narrative around insurance

Given the importance of the insurance industry to any economy, particularly as a safeguard against business and personal risks, the low level of insurance penetration among Nigerians has continued to bemuse stakeholders and generate discourse. Though, many stakeholders insist that some progress has been made in the insurance industry.
Available data indicate that the level of insurance penetration in the country is below one per cent, and the sector’s contribution to the Gross Domestic Product as of 2016 was a paltry 0.72 per cent, from 0.4 per cent in 2014.

Factors
The low penetration of the insurance sector has been blamed on a number of factors. Among the major reasons are low awareness, poor purchasing power of Nigerians, poor market drive, and unexciting products from insurers. Besides, lack of government patronage of insurance has been identified as a major impediment to insurance growth.

Relative Improvement
Confidence level among Nigerians is another cause of the low penetration. Findings reveal that many Nigerians shy away from taking insurance policies due to the cumbersome procedure for claims when hazards occur. But this has largely been addressed with the cooperation of operators and the regulators such that confidence level among both Nigerians and foreign investors has largely improved from what it used to be.
This has resulted in improved capital base, manpower and competency. An unprecedented number of foreign investors have shown interest in the insurance sector. They include Old Mutual, AXA Mansard, Prudential and Liberty groups, among others.

On its part, the National Insurance Commission has wielded the big stick on some insurance companies for different infractions.
Chairman of the Nigerian Insurance Association, Mr. Eddie Efekoha, said, “The indices are clear. If you look around, you will see that a lot of our friends from outside Nigeria are looking at Nigeria and if they are doing so, then you don’t need anyone to tell you that there is something good about us or potential they are seeing.”

High Cost
A major bane of insurance in Nigeria is the high cost of insurance packages.
Those who blame the government for the low penetration argue that government, which has the largest asset base, hardly insures and where it does, it often defaults with premium. Data from NIA reveal that government contributed only 25 per cent of the N300 billion gross insurance premium in 2012.

However, in 2014, government indicated its commitment to help drive the sector’s growth. The then Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala, announced at the annual Nigeria Insurance Summit held in Abuja, in December 2014, that government had set a target of N1 trillion in the next three years and N5 trillion gross written premiums for the insurance sector to achieve in the next 10 years. The minister stated that the target was for the insurance sector to grow its ratio of premiums to GDP by 1.6 per cent so that the sector could create more jobs and boost economic development.
While practitioners at the time noted that achieving the goal would be tough, it is hard to ascertain if the government kept to the target.

Unexploited
Findings further reveal that the sector is grossly untapped because it is yet to appeal to the informal sector, which constitute over 80 per cent of the Nigerian population. This was one of the reasons that informed the introduction of Micro Insurance in 2015.

Solution
Before now, stakeholders in the industry had made several efforts to change the negative narrative around insurance. This resulted in a better regulated sector, more awareness regarding motor vehicle insurance, and rise in paltry.

To bring about significant change in the industry, experts have advocated a number of measures, which they say would improve the fortunes of the sector. They have advocated the introduction of retail insurance, micro insurance, and Takaful (ethical) insurance.

It would be recalled that the development of the micro-insurance market is one of the objectives of the Market Development and Restructuring Initiative of NAICOM, which the commission initiated and has supported as an enabling platform to continuously raise industry awareness on its development.
Experts also believe that introducing micro-insurance would provide a platform for the insurance companies to enlarge their frontiers and increase their market share. It would also provide the insurance industry with the opportunity to enhance insurance penetration among the populace, most especially rural dwellers, many of who do not understand the basics and benefits of insurance.

Speaking on the introduction of micro-insurance, a former president of the Nigerian Council of Registered Insurance Brokers, Ayodapo Shoderu, said, “The licensing of micro-insurance is one of the best initiatives that could further move the Nigerian insurance industry forward. You will recall that close to three quarter or more of our nation’s population are domiciled at the grassroots or undertake one form of small business or the other, which were not captured by the conventional insurance companies. This initiative will galvanise these new companies to break grounds, realising that their survival depends on it.

“If the practice of micro-insurance thrives in many developing countries, like Malaysia, Indonesia, Philippines, there is no reason why ours would be an exception.”
Shoderu added, “I see the initiative growing the industry rather than shrinking it. We cannot fold our arms and wait because the industry is not as well received as expected. New grounds should be broken, and I think that is what the licensing has done.”

Way Forward
Given the current narratives in the sector, many believe there is need for the adoption of more drastic measures if penetration must improve. Some practitioners say there is need for a concerted effort among stakeholders. They maintain that NAICOM will need to drive the process even if it means that the commission has to bare some of the cost implications.

A practitioner with one of the second generation assurance companies, who spoke on condition of anonymity, argued that reducing the payable premium will encourage adoption of insurance policies. According to him, adopting the strategy would reduce the rates that underwriters remit to the commission.

He said, “NAICOM has done a lot to boost penetration among clients but there is need to do more. We should look at reducing premiums payable on some of the policies. For instance, rates payable on motor vehicle cover can be reduced to 2.5 per cent from five per cent. This will encourage more people to take insurance policies; but that means the rate that goes to NAICOM will have to reduce too.”

On whether the rate cut would be profitable to the insurance companies, he said, “Of course, we will still make profit. In fact, we will make more profit in the long term if more people take insurance policies.”