Nigeria’s low insurance uptake at one percent has been blamed largely on a dearth of innovation, especially product development and a pervading weak corporate governance structure.
Foremost research and credit ratings company, Agusto & Co, in its November economic newsletter released Tuesday in Lagos, noted that apart from the age-old challenges of poor regulatory enforcement, weak corporate governance & risk management framework and general inefficiencies within the Industry, the industry failings are largely on lack of innovation.
“The greatest of these inefficiencies would possibly be the dearth of innovation. The level of product innovation in the insurance industry pales in comparison to the banking industry, which has adopted several simple technological driven solutions that are being replicated across the globe today, such as SMS based and online transaction notifications as well as USSD based funds transfer mechanisms,” Agusto & Co noted.
The research and ratings company specifically harped on narrow product focus by the Nigerian insurers, noting that in 2016, the Nigerian Insurance industry was estimated to have generated gross premium income (GPI) of over ₦356 billion through mainly six compulsory insurance policies – third party motor insurance, employer’s liability insurance, group life insurance, builders’ liability insurance, healthcare professional indemnity insurance, and occupiers liability insurance.
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“These products and services are not only concentrated in statutory insurance policies but also within the formal sector. The insurance industry continues to pursue a strategy of selling compulsory insurance policies to the formal segment of the economy, particularly corporate clients,” Agusto said, adding that the formal market only represents about 40 percent of the economy while the informal segment accounting for 60 percent.
It equally stressed that there is a strong reason d’être for concentrating within the informal segment of the market as significant opportunities abound within the informal sector, which can be harnessed through micro-insurance.
It, however, noted that it would require technologically driven strategies to reach the large Nigerian population while reducing the cost of acquiring new policies in the long term.
“In our view, to be profitable, the “low margin/high volume” philosophy should be adopted in micro-insurance.”
Agusto & Co recommended that there is a need for insurers to offer specific products that cover just the right amount of insurance that is desired at various income and demographic levels since more than half of the population lives below the poverty line.
It also notes that insurance operators have underinvested in consumer education thus creating a vacuum that leaves consumers and operators as losers in the game.
“Investing in consumer education could help to restore confidence in the Industry and align expectations appropriately,” it highlighted, adding that a good starting point will be the provision of basic knowledge on insurance and its modus operandi.
Secondly, it admonished insurers to be more transparent in educating consumers on the fine prints in insurance contracts, stressing that the industry must also consider its preparedness for the next generation, termed “millennials” which accounts for about 28 percent of the Nigerian populace.
“This segment of the retail market is inclined to a digital-dominated world and are characterised as being technologically savvy, highly informed and captivated by instant gratification. The spending power of these individuals is expected to
increase as they mature and there is need to engage them as they evolve,” Agusto & Co stated.