Nigeria: How big insurers shun microinsurance
By Rosemary Onuoha, Vanguard
There are over 48 underwriting companies operating in the Nigerian insurance sector. However, the market is largely segmented because only a few of these companies control the market. Unfortunately, these big players are yet to show any interest in micro insurance.
Nigeria is a West African nation with a population of over 160 million people. According to the National Bureau of Statistics, NBS, 125 million people which represent 75 per cent of the population live in the semi-urban and rural areas. About 112 million which represent 67 per cent of the population live below the poverty line.
Further statistics show that within the 75 per cent semi- urban and rural populace, the market for regular commercial insurance is for just about 13 million which represents 10 per cent. The market for commercial microinsurance is for 75 million which represents 60 per cent while the market for aid/support microinsurance is for 37 million which represents 30 per cent.
From the foregoing, microinsurance has a huge market potential and ability to lift up a greater percentage of the population from poverty if well tapped. Unfortunately, conventional insurers have not shown any interest to operate microinsurance full scale.
Managing Director of Riskguard-Africa Nigeria Limited, Mr. Yemi Soladoye said that over N60 billion microinsurance opportunities are untapped by insurers in the country.
According to Soladoye, microinsurance remains the panacea for poverty eradication, but unfortunately, the conventional insurance companies have established themselves in the wholesale market. As a result, they are not ready for the peanut premiums in microinsurance.
“The existing operators don’t see any incentive for new markets and competition only leads to market growth but not market expansion.”
Soladoye said that the growth of microinsurance in Nigeria has been stunted because big insurance players have refused to embrace it. Also, there is the popular impression among Nigerian underwriters that retail insurance is only for life or composite companies even as most of the underwriters appreciate the benefits of retail insurance but the cost of establishing one, the low expertise in the segment and the long gestation period is posing a problem.
For Managing Director of Cornerstone Insurance Plc, Mr. Ganiyu Musa, there are only few individual companies on a stand alone basis with the financial muscle to invest in developing those areas of the business that will move the sector from the N200 billion gross premium income market to a trillion Naira mark.
Musa said “We all run after the same NNPC business; head of service account and such major accounts. So, the investment in infrastructure, technology that is needed to build a sustainable business model is not focused on because we don’t have the money to do that. So, there is the potential for business volume far beyond the level of capital that we have.”
According to him, microinsurance has huge potential for success in Nigeria but not necessarily through the conventional insurance practitioners.
The conventional insurance operators do not have much on ground on microinsurance; only intentions and even where the company understands everything about microinsurance, the marketing team does not see it as insurance, Musa said.
A new approach
Microinsurance cannot be delivered under the existing products, process and procedure of the commercial underwriters. Hence, if a greater percentage of the population is to benefit from insurance, experts are of the view that a new approach must be adopted.
According to Soladoye, there is big market for microinsurance in Nigeria if aggregators, associations and so on can be used rather than concentrating on the conventional underwriters.
“Microinsurance has huge potential for success in Nigeria, but not necessarily through the insurance practitioners,” Soladoye said.
While stating that for now, insurance in general will need to rely on other brands to grow very fast in Nigeria such as banks, aggregators, telcos, coops, faith organisations, Soladoye said that the National Insurance Commission, NAICOM, will still have to open up the agency system, relax the entry points and provide close supervision.
“The Philippines concept of tier 3 insurance system, the Bangladesh concept of real microfinance, the India concept of conditional microinsurance spread and the Kenya concept of simple microinsurance technical and payment system (CIC) will help as guides to a new approach for Nigeria,” Soladoye said.
According to him, stand alone institutions with small capital, lean structure, simple and bundled products, easy claims process will be necessary.
The major challenge that has affected the growth of microinsurance thus far is the fact that insurers in Nigeria have never spent time and money to do a comprehensive research on who the customers are, what they really want and how they can be served better.
Soladoye said the problem of insurance is that most people lack education on how it operates and it is worrisome that most operators recycle products developed by their counterparts.
According to him, 90 per cent of insurance operators are confused on the difference between insurance education and advertorials, stressing that people do not buy insurance because they lack knowledge of the benefits it provides.
The way forward
According to Soladoye, NAICOM may need to create a Nigeria government policy on microinsurance as is done in India. However, he charged insurers to develop products that suit the need of the public because any product that does not take default into consideration would fail. He said most insurers sell products and not solution.
Soladoye also said that research has revealed that Micro Finance Banks (MFBs) in the country presently have over 20 million customers, adding that the customers are good prospects for microinsurance.