BY CYNTHIA EZEKWE & ONOME AMUGE
As Nigeria clocks 63 years, the country’s insurance industry operators are still struggling to overcome the problems concerning ignorance of its values and acceptance, growth of premium generation and meaningful contributions to the gross domestic products (GDP) of the economy.
In fact, the most recent GDP data published by the National Bureau of Statistics (NBS) showed that the insurance sector combined with finance, totalled a meagre 5.35 percent in Q1 2023. This indicated a low insurance sector development contribution to the national economy which is seen as one of the worst insurance contributors to GDP on the African continent.
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A 2022 industry survey by Augusto and Co. noted that Nigeria’s level of insurance penetration was less than one percent, considered an abysmal performance given that the country has a population of over 200 million people who could inspire a booming insurance industry under the right circumstances.
However, this also shows that there are abundant opportunities for growth in the industry if judiciously exploited, considering the country’s large and diverse populace, and the introduction of new innovative products and channels of distribution beyond the traditional channels to reach new segments of the market.
A historic perspective of the Nigerian insurance industry shows that despite the slow growth in the past 63 years, insurance has witnessed a gradual development compared to the early stages of the country’s independence, driven by technology, regulation, and changing demographics.
Reports show that the insurance industry in the early years after independence in 1960, was very small and underdeveloped, with only a few foreign companies operating in the country.
The first major change in the industry came in the 1970s, when the Nigerian government started to actively promote and regulate the insurance sector. This included the establishment of the National Insurance Corporation of Nigeria (NICON), which was tasked with providing insurance products to Nigerians, as well as promoting the industry and regulating the activities of insurance companies. The government also established the Nigerian Insurance Commission (now known as NAICOM) to oversee the industry.
The 1990s were a time of rapid growth and expansion for the insurance industry in Nigeria. This was fueled by a number of factors, including economic reforms, the liberalisation of the insurance sector, and an increase in foreign investment. The number of insurance companies in the country increased significantly, and the industry started to offer more innovative products and services.
The start of the new millennium saw the Nigerian insurance industry enter a new phase of growth and maturity. The sector became more competitive, with more players entering the market and more focus on customer service and innovation. This was also a time when the government started to introduce more stringent regulations, such as requiring insurance companies to maintain a minimum capital requirement. In addition, the use of technology started to become more prevalent, with many companies offering online services and e-commerce solutions.
The insurance industry continued to evolve in the 2010s, with a greater focus on financial inclusion and innovation. The government also implemented reforms to make the sector more efficient and customer-centric. At the same time, there was an increase in the use of mobile technology to deliver insurance products and services, especially in rural areas. The current landscape of the insurance industry in Nigeria is quite dynamic. On the one hand, there is a lot of potential for growth and innovation, as the country’s economy continues to develop and new technologies become available. On the other hand, there are also challenges, such as the low penetration rate of insurance products and services, the lack of trust in the industry, and the need for further regulatory reforms. But overall, industry experts believe the future looks bright for the insurance industry in Nigeria.
One of the most promising areas considered a potential for massive growth is microinsurance, which is insurance designed for low-income people and communities. With the rise of mobile technology, microinsurance can be delivered in a cost-effective and efficient way, making it a viable option for the millions of Nigerians who are currently uninsured. Another area of potential growth is the expansion of bancassurance, which is the distribution of insurance products through banks, as well as the introduction of Takaful insurance and microinsurance which is expected to provide affordable coverage for low-income earners.
Commenting on the evolution of the insurance sector, Peter Irene, former managing director of International Energy Insurance PLC, opines that the performance of the insurance industry has deteriorated when compared to early stages of development.
“Today, brokers are kings, they dictate pricing but in those days, insurance companies dictated prices according to the risk. That is why today all insurance prices are low when compared to the level of risks assumed. The underpricing of risk is prevalent. Because they underprice, some of them cannot pay claims.
“Insurance is not deep today. Almost all the premiums are transferred abroad. As it stands today I don’t think all the insurance companies put together can insure one plane,” he lamented.
Irene regretted that the building of capacities has been abandoned, noting that all the legal cessions of 20 percent that started sometime in 1978 was mismanaged by both Nigeria Re and NICON and has been discontinued.
The insurance expert pointed out that the biggest change he can see is the impact of technology on the insurance sector, adding that the biggest challenge is underpricing, which according to him, can be solved through close supervision by NAICOM.
Taking an optimistic approach to the issue, Gus Wiggle, founder of Carefirst Consult, a claims management company, noted that there have been significant changes in the insurance industry since independence when the industry was still in its infancy stage to its current state of competition.
Wiggle traced the evolution of the insurance industry to the establishment of National Insurance Commission as a regulator, firstly as a department of the Ministry of Trade, to a semi-independent to the present position, noting that it is part of the significant changes that has taken place.
Speaking on how technology has impacted the insurance industry in the past 63 years, he remarked that technology has enabled many insurance companies to automate and streamline their processes and operations and thereby reducing cost and time of transaction and also improved the accuracy and reliability of data and information.
According to Wiggle, technology has facilitated and improved communication between customers and insurers and has significantly fostered innovation and competition which has enabled the emergence of new players in the insurance industry such as insurtech startups, digital platforms and aggregators.
These players, he observed, have introduced new business models, products, and services that challenge the traditional insurance practices and offer more value to customers.
However, the principal consultant in the insurance industry admitted that insurance in Nigeria is still faced with barrages of challenges, despite the achievements it has recorded in 63 years, noting that key amongst them is the passive trust issues that the industry has not been able to overcome. He also bemoaned the low penetration and awareness, noting that the penetration level is said to be under 1.6 percent of the adult population. “There is also another school of thought that believes that the industry is suffering from insufficient capital to meet the increasing demand for insurance products and services, especially in the face of economic and social risks. The industry also faces a shortage of skilled and qualified personnel, as well as limited access to technology and innovation,’’ he added.
Wiggle observed that the insurance industry in Nigeria operates under a prescriptive and outdated legal framework that hampers its growth and development, adding that NAICOM, as the main regulator, faces challenges in ensuring compliance, supervision, and protection of policyholders and beneficiaries.
Expressing his concerns, he said, “The industry also faces issues such as rate-cutting, fraud, and unethical practices. We have seen some companies whose licences were withdrawn, what’s the faith of the policyholders? There is a company still operating but have not been able to pay policyholders their benefits three years after signing their discharge vouchers. Why should such a company still be operating with a licence in this country.” Against this backdrop, he pointed out that one of the ways of solving the problems which has hindered the growth of the insurance industry is to enhance insurance education and awareness. “The insurance industry in Nigeria needs to invest more in creating and disseminating insurance knowledge and information to the public, especially at the grassroots level. The industry also needs to collaborate with relevant stakeholders, such as the government, media, civil society, and religious groups, to promote the culture and benefits of insurance,’’ he said. He stressed the need to increase capital and human resources, noting that the insurance industry in Nigeria needs to raise its capital base to meet the minimum requirements set by NAICOM, as well as to improve its solvency and competitiveness.
He stated further that the industry needs to attract and retain more talent, as well as adopt new technologies and innovations that can enhance its efficiency and effectiveness.
On his projection for the future of the insurance industry, he said, “I have high hopes and expectations for the future of the insurance industry in Nigeria. I think that the industry has a lot of potential and opportunities to grow and contribute to the economic and social development of the country.”
Wiggle noted that he hopes the insurance industry in Nigeria will increase its penetration and awareness among the population, especially the young, urban, and middle-class segments, who have more disposable income and demand for insurance products and services.
He stated that he expects the industry to leverage new technologies and innovations, such as digital platforms, mobile applications, artificial intelligence, and blockchain, to reach out to more customers and offer them more convenient, affordable, and customised solutions.
“I hope that the insurance industry in Nigeria will improve its capitalization and human resources, to meet the increasing and diversified risks and needs of the market. I expect that the industry will attract more investment, both domestic and foreign, to enhance its financial strength and stability. I also expect that the industry will develop more talent and skills, as well as foster a culture of learning and innovation, to enhance its efficiency and effectiveness,’’ Wiggle said.
Wiggle also charged NAICOM to enhance its capacity and authority to regulate, supervise, and enforce the rules and standards of the industry, as it is pertinent the industry adheres to ethical principles and professional codes of conduct.
On the journey so far, Ekerete Gam-Ikon, a management consultant in insurance, noted that the insurance regulator, NAICOM, has issued quite a number of regulations and guidelines to anticipate and create opportunities for deepening insurance penetration rate in Nigeria, some of which are yet to be fully exploited by insurance operators.
According to Gam-Ikon, the need for insurance awareness and customer education had been affirmed to be necessary for the growth and development of the insurance industry in Nigeria, and there have been significant efforts both from the regulatory and practitioners angles, which have resulted in more advocacy about insurance over the past few years.
He noted further that the adoption of tech solutions to manage insurance operations across the entire insurance value chain has increased, adding that there is more efficiency in the delivery of insurance products and services and the impact can be seen in the financial reports of insurance companies.
“Policyholders have become better engaged in terms of the prompt responses of insurance companies with respect to delivery of policy documents, product distribution and payment of claims,” he said.
Gam-Ikon also noted that technology has tremendously impacted the insurance industry in Nigeria especially in the last ten years.
According to him, the industry may have been late but has seemingly caught up nicely with other sectors in this regard, with insurtech fast becoming the new growth engine into the future for the insurance sector.
“Clearly, with the insurance incumbents partnering with the Insurtech firms, we can hope to see significant improvements in the responses of operators to policyholders’ needs and demands.
We already have tech solutions that drive sales for insurance companies and ease settlement of claims. We are going to see more impact of insurance technology in the years ahead in the insurance industry in Nigeria,” he opined.
Commenting on the biggest challenges facing the insurance industry in Nigeria, and the possible solutions, the insurance consultant identified three biggest challenges in the insurance industry in Nigeria, namely; ineffective market communication, lack of product innovation and inability to attract the attention of policymakers and investors.
He contended that addressing these problems would require the collective action of insurance operators and the positive support of the regulators, stressing that getting reinsurers, insurers and brokers to work together in terms of stakeholders’ engagement is a necessary step.
In terms of product innovation, Gam-Ikon said the insurance industry in Nigeria needs to work harder at developing and revitalising products that meet the needs of the insuring public.
“Quite sadly, no insurance company offers trade credit guarantee and it seems to have slipped off our hands, as a class of insurance,” he lamented.
Dwelling on how the regulatory environment has so far impacted the insurance industry, he observed that the insurance industry in Nigeria has been hugely impacted by the regulatory environment.
According to Gam-Ikon, the announcement of the new premium rates for motor insurance by the regulator is still a challenge rather than an opportunity for operators and their customers. Based on this, he suggested that the sales of motor insurance, especially the third party, needs to be tackled from the point of sales, i.e., vehicle licensing offices across the country.
Gam-Ikon expressed optimism over the future of the Nigerian insurance industry as more operators engage the insuring public, leveraging the opportunities created by regulations, improved technology and guidelines of the regulators.
He also maintained that microinsurance and takaful are expected to further deepen insurance penetration in Nigeria. He averred that these, coupled with Insurtech, are the real game changers and torchbearers in the Nigerian insurance industry.