Why McKinsey’s SME approach can’t work for Nigeria, market requires micro-insurance instead

By Zainab Iwayemi

A recent study by Mckinsey and Company revealed how insurance companies can rethink the SME segment with innovative product offerings, providing them with the opportunity to capture more of the SME market by focusing on the thriving segments of the market.

However, showing how the Covid-19 outbreak has given a different perception to many small businesses, the research further highlighted the need for flexibility in financial plans and product coverage, trusted and transparent environment, as well as a user-friendly experience as a way forward for insurance to win SMEs.

There is no doubt that the SMEs are the bedrock for a thriving economy globally and in Nigeria. This is visible from the Nigerian SME study which shows that SMEs contribute about 48 per cent of the nation’s gross domestic product (GDP) as well as account for 96 per cent of businesses and 84 per cent of total employment in the country.

In spite of the level of growth which the Nigerian SME space has experienced over the years, the new study by McKinsey appears to highlight how Nigerian insurers can readjust their business models to win the SME market through flexible financial plans and product coverage.

Meanwhile, industry experts in the insurance space have highlighted that small business insurance can be operated by microinsurance firms because of its nature, requiring meagre funds, as it might be difficult for insurers focusing on multinational companies to re-channel focus to suit the SME.

In the view of insurance management strategy expert and practitioner, Ekerete Olawoye Gam-Ikon, readjustment will require a change in philosophy and mindset, people, strategies, and technology to engage. He asked which of the existing insurers will take such costs and seek to wait for returns that will come in trickles.

“Firstly, it is going to be very challenging for the traditional insurance companies in Nigeria to readjust their business models to accommodate the expectations of SMEs due to the demands of their shareholders in the face of regulator-induced recapitalization, which the first deadline is the end of this year.

“The only feasible way to go is with micro insurance and the traditional firms may be allowed to have the licenses to operate. We should avoid making the mistake of trying to do it like retail banking; otherwise, it will fail to happen as we have seen in past years. Let us rather have more micro insurance licensed operators.”

Sadly, SMEs as the major driver of economic progress account for no significant level of insurance precaution in Nigeria. This is due to the fact that many of the micro, small and medium business owners are not educated on the essence of insurance and how it works.

The MSMEs have been doing business in Nigeria for so many years and do not understand the place of insurance in what they do. Apprentices have not heard about insurance from their masters, so there is a serious need for education and enlightenment. However, it is even more important to prepare the supply side, so that as you convince the MSMEs, you can point them in the direction to go. If they go to the traditional insurers, chances are they will not meet what they expected and that would be a bad one for the insurance industry.

On the other hand, the micro and small business space seems like an unchartered territory in Nigeria; with the use of technology in harnessing data that can help insurers rethink the improvement in service offerings to customers as well as developing new products that meet customer needs and rethinking customer journeys with them for proper engagement should be the focus. There is technology but we are yet to have insurance technology (Insurtech) that can take the customer through an end-to-end experience.

Nigeria, unlike other advanced climes such as the UK, US and China, is yet to reach a technology-driven economy where data availability makes things easy; hence, choosing to adopt the western ideology would seem like fitting a square peg into a round hole.

But, before deciding to adopt the western ideology in Africa, one needs to consider the pace of development in both continents and ask the feasibility of success considering the available resources, as failure to draft this, would bounce back an inverse result for the weak country (usually the developing country). Perhaps, this explains why the African continent has continued to fail in the race to meet up with other continents of the world.

“This is part of the readiness needed on the supply side. So, on all sides, we should consider using the next 12-18 months to educate and enlighten MSMEs, prepare the Insurtech and ensure regulation is ready with particular emphasis on claims payments by insurers. Thus, with the training of 10,000 MSMEs announced by NAICOM recently, I see a good effort at building a sustainable system. Remember, technology is an enabler so we have to build what we need it to enable.” Ekerete explained.

Basically, the SMEs need and expect products they can buy on-the-go and pay for in small amount while claims would be paid within 24 hours; expectations that can possibly be met by microinsurance firms. However, if we are expecting insurers that are configured to serve large multinational companies and have been injecting costly funds to continue in that line to now readjust to serve SMEs, then, Nigeria is in for huge confusion that will even affect the areas where the insurance industry has been hugely successful.