Enhancing Financial Inclusiveness via Micro-insurance

Financial inclusiveness among Nigerians especially in insurance is one task that has remained a tall order for insurance sector regulator, NAICOM and the industry operators. Ebere Nwoji reports that the industry now sees micro insurance as right way to go.

The problem of Nigerians’ alienation to insurance services is as old as insurance business in Nigeria. Many reasons have been adduced to this. 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 the insurance sector regulator, the National Insurance Commission (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 grass root dwellers.

Indeed, industry analysts said the result of the research was very true considering the fact that over the years, insurance has remained the exclusive of the elites as the product structure, the marketing efforts, the services, the location of insurance institutions were tailored to suit the city dwellers and have to a large extent excluded the interest of the grassroots dwellers. 

Promoting Micro Insurance

The analyst said this 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.

The result of this exclusion of the grassroots dwellers from insurance services over the years was 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 was 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 were 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 exchange 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 as despite the huge losses occurring in the air transport system, in the marine subsector, on road transport, in various markets in the country as a result of incessant fire outbreaks, in the construction industry due to incessant building collapses and the loss of lives of many bread winners of families, 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.

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. This is why till date, insurance sector cannot boast of making significant contributions to the GDP of the economy.

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.

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 believed 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, year in year out are more determined to see their dream of seeing Nigerians rush insurance products the same way they rush banking services and products realised.

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.

NAICOM Employs Marketing Channels

On its marketing channels effort, NAICOM early this year 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 is 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.

Just last week, the commissioner for insurance, Mr. Sunday Olorundare Thomas explained that licensing of micro insurance operators was initiated by the commission as a way of promoting financial inclusion of Nigerians in insurance services.

Thomas said securing financial inclusiveness among Nigerians in the area of insurance was the main reason for licensing micro insurance institution operators.

“Micro insurance provides the leeway to protecting people’s property, safeguarding belongings from damages or loss and ensuring the insured’s did not suffer loss when the unexpected damage or loss occurs”.

He said it also safeguards traders or businesses of artisans and petty traders whenever their wares were destroyed, damaged or stolen.

“Micro insurance is a way of safeguarding your property or business from any unforeseen event, and when it happens, what ever loss you insured against will be reimbursed, “the insurance commissioner assured.

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.

NAICOM as one can see is contributing its own quota to achieving financial literacy among Nigerians through the promotion of retail insurance especially micro insurance.

By its simplest definition, financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of the society, in contrast to financial exclusion where those services are not available or affordable.

Status of Insurance Industry 

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 percent   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 the gross domestic product (GDP) of the economy in Nigeria has remained below 1 per cent while less than 5 million out of over 200 million population of the country have 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.

Bearing this in mind with its position as a member of the Steering Committee on Financial Inclusion Strategy, 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 one of the media retreats it organised for journalists 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.

The former commissioner for insurance Mr. Fola Daniel speaking on this said development of micro insurance would occupy the time and energy of the Commission henceforth in order to ensure that Nigeria’s level of insurance literacy and awareness comes up as it is in Ghana. Making a move towards this dream, the Commission first released a guideline for micro insurance business in Nigeria.

Micro Insurance Guidelines

The Commission in the 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.

insurance in financial literacy

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.

Exclusion on People

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 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.

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 will achieve success in the current effort to ensure insurance penetration in Nigeria through micro insurance.

Analysts Recommendations

However, the commission 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.

NAICOM should ensure that the micro insurance distributors do not engage in unnecessary competition by concentrating on one area they saw that a particular marketer has achieved success as  seen among conventional insurers. Rather, each micro insurance distributor should strive to create a niche for himself by discovering his own catchment area and do a follow-up of the people there with desired insurance products.

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.