Deepening insurance penetration in Nigeria

Experts have highlighted ways that insurance penetration can be deepened in Nigeria taking into cognisance stereotype as a potential drawback that needs to be addressed, writes JOSEPH INOKOTONG.

Low insurance penetration is a term used to describe the low level of insurance coverage in a country or region. It is measured by the percentage of the population that has some type of insurance, such as health insurance, life insurance, or property insurance.

A low level of insurance penetration can have a number of negative consequences for both individuals and the economy as a whole.

Low insurance penetration is a major issue facing many countries, especially developing countries. There are a number of factors that contribute to low insurance penetration, including lack of education, lack of awareness and lack of trust in the insurance industry.

The most recent data from the National Insurance Commission (NAICOM) showed the gross premium recorded by the Nigerian insurance industry for the fourth quarter of 2023 stood at N1.003 trillion. It noted that the figure indicated a progressive trend of positive market performance.

Despite this, experts say the Nigerian insurance sector penetration still remains low.

However, experts have highlighted ways Nigeria can deepen insurance penetration

Experts at Proshare, a professional practice focused on delivering research and information services to bridge the gap between investors and markets, say Nigeria’s insurance penetration is still below three percent but presents immense opportunities for growth and expansion. With the recent recapitalisation exercise in 2021, the industry is expected to experience a boost in valuation and play a vital role in the financial market.

Insurance expert and management consultant, Mr Ekerete Ola Gam-Ikon, in a recent interview with Proshare, highlighted three areas that offer immense opportunities to deepen the industry.

The insurance expert called for an intentional step by the National Assembly to remove the insurance industry from the Exclusive to the Concurrent list. He described insurance as a veritable source of revenue, which the federal and state governments are failing to see.

This, the expert said, will lead to states establishing their respective insurance commissions, enhancing revenues and job creation and providing a safer environment for businesses to be assured in the country.

He added that states should be able to domesticate their respective insurance laws, unlocking opportunities for the insurance industry value chain.

Looking at the role of insurtechs in deepening insurance penetration in Nigeria, Gam-Ikon stressed that there are already showing that they can offer what the insuring public needs, but cannot get from traditional insurance companies.

He said, “For example, you can now insure your devices – phones, tabs and laptops – only without adding it to your office or home insurance programme. Also, thanks to insurtech, you can now get car insurance when the vehicle is mobile. More like usage-based insurance.”

According to him, insurtech firms drive other initiatives and solutions, sometimes in partnership with traditional insurers, to deliver cheaper products and effective distribution channels.

“With improvement in insurance access and affordability, an increased number of individuals have taken up insurance in this period, better than last year,” Gam-Ikon added.

An enabling regulatory environment for the insurance industry to thrive in the country is another area highlighted for a significant increase in the penetration level of the industry.

While acknowledging the role the NAICOM has played in addressing market development through regulations, Gam-Ikon believes there is a need to do a lot more to address the issue of unpaid claims by insurers.  First, he urged the regulator to consider the Policyholders Protection Fund.

He said, the Policyholders Protection Fund is already functional across several African markets and ensures claimants are paid, while the affected insurers are made to pay later to the commission.

Also, Gam-Ikon said NAICOM should consider charging insurers that allow claims to be delayed a fine to discourage such behaviour. Insurers often tell claimants they do not care if their cases are taken to the regulator. When NAICOM seems to be slow and ineffective, the claimants are left with the impression that the regulator is protecting the insurers.

Again, he harped on regulations for Insurtech firms in the country. He stated that the Guidelines on Web Aggregators are not enough as not all Insurtech firms are doing aggregation.

One of the consequences of low insurance penetration is that individuals are at greater financial risk. Without insurance, people are more vulnerable to unexpected expenses, such as medical bills or property damage. This can lead to financial hardship and even bankruptcy.

In addition, low insurance penetration can lead to slower economic growth. This is because insurance helps to protect businesses and individuals from financial losses, which allows them to take risks and invest in new businesses and technologies. But with low insurance penetration, there is less incentive for risk-taking, which can stifle innovation and growth.

Also, low insurance penetration can lead to increased government spending on social safety net programmes. This is because without insurance, individuals and families may rely more heavily on government programmes, such as welfare and healthcare, to meet their basic needs.

In addition, low insurance penetration can lead to higher taxes, as the government may need to increase spending to make up for the lack of insurance coverage. It is obvious that low insurance penetration has a number of negative consequences.

Another way to increase insurance penetration is through financial education. Financial literacy is essential for understanding the importance of insurance and making informed decisions about coverage. Financial education can be provided through schools, community organisations and even through the insurance industry itself.

Insurance penetration can be achieved through government incentives. For example, governments can offer tax breaks or other incentives for those who purchase insurance.

Another solution is to work with the industry to make insurance more affordable. This can be done through micro-insurance, which is designed to provide basic coverage at a low cost. It can also be done through partnerships with employers, who can offer group insurance plans at discounted rates. In addition, the insurance industry can make it easier to apply for and purchase insurance through online platforms and mobile apps that make the process more convenient and accessible.

It is also important to address the issue of trust. Many people are skeptical of the insurance industry and this can be a major barrier to purchasing insurance. To address this, the insurance industry can work to build trust by being transparent about policies and procedures and by following through on promises and commitments. Transparency and accountability are key to building trust and increasing insurance penetration.

Also, an important solution is to increase the availability of insurance by working with local communities and organisations to reach more people. For example, micro-insurance programmes can be expanded to reach rural communities and mobile apps can be used to reach people who don’t have access to traditional insurance outlets. By increasing the availability of insurance, it can be made more accessible and affordable for everyone.

The issue of cultural barriers should be addressed. In some cultures, insurance is seen as a foreign or Western concept, which can make it difficult to sell insurance policies. To overcome this barrier, the insurance industry can work with local leaders and communities to create culturally appropriate messages about the benefits of insurance. By addressing these cultural barriers, insurers can make insurance more appealing and accessible to a wider range of people.

The role of technology in increasing insurance penetration cannot be overlooked. Technology can be used to create innovative insurance products that are tailored to specific needs and circumstances. For example, there are now insurance policies that are based on mobile phone usage, which can be more accessible and affordable for people in developing countries.

Technology will be a major driving force in making insurance more accessible and affordable for everyone. Artificial intelligence (AI) can play a role in increasing insurance penetration. In fact, there are already a number of ways that AI is being used to improve insurance products and services. For example, AI can be used to analyse large amounts of data to create personalised insurance policies that are tailored to the specific needs of each individual. It can also be used to automate the claims process, making it faster and more efficient and it can be used to create chatbots and other interactive tools that make it easier for customers to learn about and purchase insurance policies.

AI has the potential to revolutionise the insurance industry. It can make insurance more affordable, more accessible and more personalised. It can also help to reduce fraud and error in the claims process. It can help to create a more efficient and customer-friendly insurance experience.

In tackling low insurance penetration, stereotype is a very important concern, a potential drawback and one that the insurance industry needs to address. The stereotype that insurance companies don’t honour claims or pay out on time can be damaging to the industry’s reputation and can deter people from purchasing insurance.

To address this, insurance companies need to be transparent about their claims process and how they handle claims. They also need to make sure that their claims process is efficient and fair.

Education is key to improving the reputation of the insurance industry. The more people understand how insurance works and what their rights are, the more likely they are to purchase insurance and to have a positive experience with the claims process.

In many countries, the government plays a role in regulating the insurance industry and ensuring that companies operate fairly. The government can also do more to educate people about insurance and its benefits. For example, they could create public awareness campaigns or require insurance companies to provide information about their policies and claims process.

Another way to improve the reputation of the insurance industry is through positive public relations (PR) and marketing. Insurance companies can highlight the stories of people who have had a positive experience with insurance. They can also use social media and other channels to showcase their commitment to customer service and to providing the best possible experience for their customers.

ALSO READ: Yoruba Nation: Gov Adeleke beefs up security in Osun