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Deepening Nigeria’s Insurance Penetration for Economic Growth

The discussion surrounding deepening Nigeria’s insurance industry has been ongoing since the reforms in 1997. However, a look into the financial sub-sector, listed on Nigerian Stock Exchange (NSE), show that investors still wait to get meaningful returns on their investment in insurance stocks. Diverse challenges persist and show no signs of abating unless drastic actions are taken to deepen the insurance culture among Nigerians. Issues of low patronage, nominal value trading on the NSE coupled with little or no insurance culture of Nigerians continue to take a toll on the insurance sector, as an analysis on the performance of listed insurance companies’ in the year 2017 confirmed that the sector continues the struggle to break even. On this note, ADESOLA AFOLABI delves into an industry analysis to discover its real state and the industry’s readiness on contributing immensely to Nigeria’s economic growth.


“If you take automobile insurance away, the Nigerian insurance industry will inevitably die”. This statement was made by Mr. Abiodun Atobatele, Information Technology (IT) Expert and solutions provider, and former Head of IT at Leadway Assurance Plc, during a public forum in Lagos, tagged: ‘Breaking the Code’. The consensus at the forum held in September 2017, with a cross-section of experts as discussants, was that the penetration of the insurance sub-sector is dreadfully low. The experts also agreed that the low penetration does not bid well for the Nigerian economy.

Insurance in Nigeria in Comparison with regions across Africa:

Agusto & Co, Nigeria’s first Credit Rating Agency and a Pan African leader in credit ratings and credit report recently affirmed in its May 2017 report “Into Africa” that Nigeria’s estimated insurance penetration rate is at 0.4 per cent and only 1 per cent of the population holds any form of insurance policy. This statistics means that only 1.7 million Nigerians out of 170 million of the populace are covered under any form of insurance policy. This suggests that the transformation agenda by the National Insurance Commission, NAICOM for written premiums to hit the N1 trillion mark from its current N300 billion (approx.) will require no small task. The initiatives in order to achieve the transformation agenda include job creation in the insurance Industry, enforcement of compulsory insurance, the building of consumer trust and public awareness for insurance services.

Although, a financial analyst at Agusto & Co, Ada Ufomadu opined that cultural and religious beliefs has negatively affected the desire for insurance in Nigeria. She was however optimistic about the industry, stating that the industry remains resilient, recording a compounded annual growth rate (CAGR) of 10.2 per cent in gross premium income (GPI) since 2012. In her report on the challenges and opportunities in the Nigerian Insurance industry, she discovered that GPI grew by an estimated 10 per cent to N356 billion, adding that the growth was upheld by the enforcement of compulsory insurance policies, particularly in the group life and motor insurance business lines. This suggest that the recent drive embarked on by the insurance sector which inaugurated a technical committee to drive the enforcement of compulsory insurance for public building nationwide could yield rewarding results.

Is compulsion the way to go?

Researchers and industry stakeholders have for long pushed for a more robust and inclusive target that encompasses the oil and gas sector, the manufacturing sector, education sector, building and construction sector among many others, for mapping and strategic implementation.

Ideally, all schools, hospitals and public services such as mass public transport should have a compulsory insurance policy that individuals who use such service must pay for. These were the submissions of AIICO Insurance’s Head of Retail Sales, Taofik Ayeni, during an August training organised for members of the Capital Market Correspondents’ Association of Nigeria, CAMCAN, in Lagos.

According to Ayeni, ordinarily, an economy with a population such as Nigeria (180 million as at 2016 estimate, Word Development Indicators) coupled with its many challenges arising from business unease and cultural differences, the Nigerian economy is arguably a thriving pot for insurance development potentials. Unfortunately, this is not the case in the Nigerian scenario. The inability to milk these challenges by the insurance sector can be traced to the inadequacies in insurance education and sensitization among the citizenry. Nevertheless, an inference from Ada Ufomadu’s report recommends that to tap into the enormous opportunities prevalent in the country and compete favourably with countries like Kenya and South Africa that boast of insurance penetrations of 2.9 per cent and 14 per cent respectively, a starting point will be the untapped female retail insurance market waiting to be served.

A survey conducted by the credit rating firm Ada works with, revealed that women are increasingly becoming empowered in Nigeria, enabling them to make spending decisions. “About 22 per cent of female respondents from the survey earned above ₦10 million ($33,000 @ ₦305/$). In addition, female entrepreneurs are becoming a growing part of the real sector as 24% of the female respondents were self-employed and managers of various small and medium sized enterprises (SMEs). This highlights the need for insurance products specified to underwrite risks involved in small and medium sized enterprises (SMEs) as well as life policies for female entrepreneurs.

From our survey, we discovered that 57per cent of female respondents’ preferred direct sales agents as an avenue in purchasing insurance policies. This somewhat reflects a knowledge gap as women would prefer to relate one on one with sales agents in order to build trust and be given opportunities to ask questions in order to deepen their understanding of insurance. This point is buttressed by a significant 72 per cent of female respondents who indicated mistrust of insurance companies and policies offered as the reason for not subscribing to insurance policies. Insurance operators need to equip their marketing agents with adequate understanding of the insurance products offered and the needs of clients. Our survey revealed that 42 per cent of respondents had not had any insurance products marketed to them in the last 12 months”, Ada reported.

Benefits accrued from the Insurance sector:

It is no doubt that a growing insurance industry aids in the development and growth of the Nigerian economy. It encourages savings and investment, job creation and growth in capital markets and financial assets. Over the past decade the Nigerian insurance industry has grown steadily and this can be shown in the total premiums which have gone from about N75 billion in 2005 to over N300 billion currently. NAICOM’s transformation agenda supports the Central Bank of Nigeria’s financial system strategy 2020. The sector is aspiring to employ 100,000 people in the insurance industry, a growth from the 30,000 personnel currently engaged in the sector. Growth in the number of people holding an insurance policy is also included in the agenda. Presently, Nigeria has an average of 2 million policyholders out of a population of 180 million people. This means that there is a lot more potential to increase the number of policyholders to 10 million in the next 3 years.

Demand for insurance:

Let us consider these simple scenarios. Mr. Charles Uzodinma; a petty trader, got involved in two consecutive road accidents. Fortunately, his life was spared on both occasions, but his vehicle was a write-off. He got a replacement for the first vehicle in less than one week but got involved in the second accident that also destroyed the second car. Although Mr. Charles was a petty trader at the popular Sango market in Ogun State Nigeria, I wondered how he managed to replace two cars in less than a month. I summoned the courage to ask him about the incident and how he managed to progress in his business despite the monumental losses, he simply told me an ancient Ethiopian Proverb that says “The elephant does not limp when walking on thorns”.

Perplexed at the statement, I pondered on what it could mean till I got home. My conclusion was that Mr. Charles Uzodinma was into some fetish practices to be able to replace his wrecked cars so fast. Thankfully, I met his wife in a local taxi on my way to work some days after, who disclosed that her husband engages in some general business insurance policies. Now, that’s is financial intelligence from a less literate man which prepared him for the rainy day.

Shortly after this incident, I attended a meeting which comprised of financial journalists and discussions surrounding insurance came up. The meeting was geared towards encouraging journalist to engage on some form of insurance policy, the meeting ended in chaos, not because of indecisions on the policy to take (we decided on Life Insurance) but because it was rather difficult to achieve a collective agreement on how to pay for the policy decided on.

Naturally, this two (2) incidents came to mind when I decided to write this article and further perusal into the subject matter exposed lack of basic knowledge on insurance, its uses and benefits as a major bane to the development of the sector. These two (2) scenarios pointed to the fact that it is not about the level of literacy but the knowledge available to either party on available insurance products.

A trend analysis carried out in 2016 by Olayungbo and Akinlo in a research work titled: Insurance penetration and economic growth in Africa, reveals that insurance demand varies in African countries and is still relatively low compared to their counterparts in Asia and Europe except for South Africa. In Nigeria, although the performance of the sector has been blamed on the nation’s low income per capita ($1092 per annum). Reports reveal that 70 per cent of Nigerians are poor (National Bureau of Statistics), but the population’s top 20 per cent are responsible for 59 per cent of national consumption expenditure. Agusto & Co believes that it is imperative for both operators and regulators to work together to increase awareness and educate the populace on the benefits of insurance. “We need to take a cue from countries like Kenya and South Africa who have adopted various strategies including the support of other sectors such as telecommunications to drive penetration of insurance. Industry operators must be more aggressive in their marketing approaches, offering products and services that are bespoke to the Nigerian environment and populace.

For example, selling of insurance policies can be done through mobile phones due to the high penetration of mobile phone with over 70% of Nigeria’s population connected via different Telcos. This allows for the insurance industry to tap into the informal sector in order to increase the number of policyholders. The Nigerian economy is expanding and new risks are evolving, hence a growing need for companies and individuals to insure businesses and protect themselves in the event of unexpected losses. By this, the economy is able to rebuild and recover from losses quickly.”

Insurance and its contributions to Economic Growth.

The insurance sector may well be on its way to outperform other financial institutions operating in the Nigerian Economy as revealed by the recently released third quarter report on Nigeria’s GDP at the National Bureau of Statistics (2017). The insurance subsector under the financial and insurance sector of the economy recorded a positive growth in 2017. A year to date (Q3’17) performance review showed that the insurance sector has grown by 1.26 per cent from Q1, 2017 to Q3, 2017, however, a sharp decline of 1.86 per cent was recorded in the third quarter of 2017 from 3.79 per cent recorded at the second quarter when the sub sector recorded its largest growth in 2017.

Growth trend of Nigeria’s Insurance Sector

Even though researchers and analysts from the Lagos Business School (LBS) agree that the insurance industry is a major driver of financial activities and actively plays an increasing role in stable and efficient risk diversification. By this, it contributes vastly to the economic development of many countries. The insurance sub-sector in the case of Nigeria appears to be playing a passive role in economic development, trailing behind in major policy reforms required for harnessing the huge economic potential that remains largely untapped in the industry. In addition, the sector has attracted relatively large volumes of foreign private investments in recent years owing to the nation’s population, its emerging middle class and lingering low insurance penetration. In spite of the challenging landscape of insurance in the country, the industry recorded N319.1 billion in 2014. From the available records, the total assets of the insurance sector rose from N488bn in 2008 to N793.6bn at the end of the first quarter of 2015.

The insightful session held by experts from various sectors of the Nigerian economy at the 2017 Insurance September forum addressed the need for a change in the dynamics, innovativeness and depth of the Insurance Industry as reported Proshare Nigeria. The report which noted several brilliant suggestions for repositioning the industry, quoted the convener of the forum Mr Ekerete Ola-Gam Ikon to have said, the Insurance September will create more room for strategic collaborations between the Insurance industry and other related sectors of the economy to explore how the Industry can be attractive to Nigerians and become more customer-centered. According to the report, Mr Stanley Zebulon said there was the need for a proper reorientation in the sector, as there were immense opportunities for it to grow in the country. He, however, noted that the issue of pricing needs to be resolved in the industry to make it viable.

In terms of scale, depth and capacity, Mr Dienye Peterside a chartered marketer believed it was time for the integration of the informal sector into the insurance space. Peterside shared that Nigeria should learn from Rwanda who currently has a robust and comprehensive national insurance scheme that is all-encompassing. Mr Peterside decried the fact that while Insurance companies in the United States and Europe owned banks, the reverse was the case in Nigeria with banks acquiring insurance companies. It is high time the insurance sector in Nigeria controlled the game in the financial sector of the economy. Giving his perspective on the unfolding digital revolution, Mr Abiodun Atobatele asserted that the Nigerian Insurance Industry required critical transformation to deliver valuable service to the citizens. The ICT consultant/expert identified four ways insurance companies can embrace the digital transformation namely; empowering employees, improving communications channels, optimizing operations and transforming products to adapt to changes and innovations. A brand consultant Mr Charles O’Tudor in his brief remarks made a strong case for the industry to think about customers in its branding process, and fully adopt the innovative platforms to delivering effective service. In her intervention Edobong Akpabio, an Agripreneur called for an improved customer service relations strategy that will engage the customers, sensitize them and also add value to the industry. Also sharing her perspective Ini Abimbola a consultant, called on the Insurance industry, to give consideration to micro-insurance initiatives that will target the MSMEs in the country.

Finally, it can be recalled that several years ago it was a challenge for husbands to write their “will”. The erroneous belief that if they wrote their will it was a sign of an impending death. This action put many women and children into perils after the demise of the husbands while extended families and strangers took over the properties. Suddenly, there was a change, informed husbands now write their “will”. But how did this change? A major factor can be revealed in the actions taken by religious bodies that encouraged their members to take the bold step of securing the future of the immediate family. To deepen the activities of the insurance sector to positively influence the Nigerian economy, the religious and cultural barriers must be steadily and judiciously fragmented. Insurance operators must devise ways to take the gospel of insurance products to the pulpit of religious organizations. Another aspect that controls the Nigerian mind is politics. When things are done in compulsion rather than voluntary, it sells well to the Nigerian public. From politicians to students, there must be an insurance package for these kinds of people that is serviced by one form of policy instrument. Insurance products must be innovative, well packaged and well suited for the Nigerian populace in order to greatly impact the Nigerian economy.

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