The goldmine in Nigeria’s uninsured population

By Lakinbofa Goodluck

They say change is the only constant thing in life. But there is a variation of change that is also constant – uncertainty. Life is full of uncertainty; every human activity comes with some level of risk. The realisation of this natural phenomenon triggered the invention of an instrument called insurance designed to mitigate the immanent risk of living in this sphere. Insurance is a form of agreement that guarantees an individual or corporateentity financial protection or reimbursement against losses, based on agreed terms. The idea of insurance is as old as human civilisation. Many times there is a miscomprehension that insurance is a modern concept. However history shows that people started embracing insurance as early as 4000–3000 BCE in ancient Babylon in form of what was called Bottomry contracts. Insurance became more prominent with the establishment of the Lloyd’s of London, which was a foremost international insurance market for the fledging maritime business at the time, and the American PhiladephiaContributorship established by Benjamin Franklin. Over the years, the insurance sector has grown in leaps, and now an essential aspect of the developed world’s economies. According to the Association of British Insurers [ABI], of the 26.4 million households in the UK in 2012, 20.1 million had contents insurance, 19.6 million had motor insurance, 17 million had buildings insurance, 3.1 million had mortgage protection, and 1.6 million had private medical insurance. Essentially, one in every six Britons has one form of insurance. As at 2014, the British insurance sector manages investments of £1.8 trillion (equivalent to 25% of the UK’s total net worth), pays nearly £12bn in taxes to the Government and employs 315,000 individuals.

In the United States, the story is no different from what obtains in the UK. Data from the United States Bureau of Economic Analysis shows that the sector contributed $507.7 billion or 2.7 percent of U.S. Gross Domestic Product [GDP] in 2016 and employs 2.6 million people in the same year. A survey by Bankrate Money Pulse indicates that six in ten Americans say they own life insurance and nine out of ten have health insurance, which the government is determined to make accessible for all. An overview of the insurance sector in the two countries helps to appreciate the current appalling but promising state of the industry in Nigeria.

Although the sector has been experiencing growth in recent years, it remains miles away from attaining its potential status in the Nigerian financial services landscape. For the year 2016 the overall Gross Premium Income (GPI) of the industry stood at ₦356 billion, growing fromN75 billion in 2005. This suggests that the industry has grown by over 350% in ten years. However, a study by Augusto & Co reveals that only about 1% of Nigeria’s population has life insurance. In other words out of 100 Nigerians you are likely to find just one individual with life insurance. Whereas nine out ten Americans have health insurance, our National Health Insurance Commission, NHIS, has covered less than 5% of the population. Nigeria has only about 3 million policyholders out of a population of 174 million people.Little wonder the sector contributes a paltry 0.4% to the nation’s Gross Domestic Product (GDP) and employs just about 30000 people whenDangote Group alone currently has 26,000 employees.

The cheering news is that the sector is still a Greenfield beckoning for optimisation.Some of the major reasons for the current situation are cultural orientation and the conservative disposition of insurers in the country. While many Nigerians are disinclined to buying insurance products, the professionals in the field have not done well in marketing the business in the most attractive way. The study by Augusto & Co suggests that nearly 50% of Nigerians have not had any insurance product marketed to them in 12months, which presupposes that many Nigerians are not even aware of insurance. And in cases when these products are marketed the agents communicate poorly in a way that leaves the prospective buyer more confused.

On the part of the government, there have been series of reforms targeted at repositioning the sector. A notable reform was the move by the former Minister for Finance, Dr.NgoziOkonjo-Iwealawhen she announced an 18-month consolidation period to raise minimum capital base for insurance companies to between N2 billion and N10 billion for operators in the four core categories in the sector. The recapitalisation saw life insurance companies raise their capital from N150 million to N2 billion, composite insurance firms raised theirs from N350 million to N5 billion, while non-life-underwriting companies were raised from 200million to 3billion. Reinsurance companies moved from 350million to 10billion. At the end of the recapitalisation exercise only about 26 insurance firms survived. Another positive reform was the introduction of the Market Reconstruction and Development Initiative (MRDI) in 2012 aimed at driving insurance penetration in Nigeria, through enforcement of the compulsory insurance regulation and a continuous sensitization of the public on the benefits of insurance.Studies have shown that the reforms introduced by NAICOM have seen the sector experience 40% growth from just about 3%.

Going further, acommittee headed byMohammed Kari, NAICOM Deputy Commissioner, Technical, was also set up to implement the three-year transformation agenda.The aim of the agenda, among other things, is to lobby the government to enforce compulsory insurance especially among contractors. Speaking on the agenda, NAICOM Assistant Director, Corporate Affairs, Salami Rasaaq, said “The Commission believes that a buoyant insurance sector would result in greater contribution to the country’s Gross Domestic Product and lead to a robust economy for Nigeria and with the support of the Federal Government, the commission would achieve its planned goal. “There is no contractor today in this country that can do any contract without having a tax clearance, without the office asking for a certificate of compliance to PENCOM Act. We are working with government to replicate this with the compulsory insurances. When this is implemented, it will generate a lot of premium for the industry and we are hoping this will take effect from this year as already promised by the CME.” Other components of the agenda is to ensure that by 2019 the gross written premium of the industry would rise from N300 billion to N1trillion. Also, the number of policy holders is expected to increase from 3 million to 10 million in the next three years, while the number of those employed in the industry is expected to move from 30,000 to 100,000.  These are clearly ambitious and laudable targets set in the transformation agenda. Sadly, it appears the agenda died with the transformation regime of the previous administration.

Nevertheless, NAICOM again hinted in December 2017 that the 58 insurance companies in the country are likely togo through another form of recapitalisation in order to meet the challenges of the current business reality. Expectations are that this will lead to another round of mergers and acquisition, and public offers on the floor of the Nigerian Stock Exchange. Naturally, recapitalisation is expected to make the insurancecompanies stronger and aid better performance. Even so, big insurance companies with low penetration amounts to less impact on the economy. To grow the sector requires intervention of the government. No insurance industry in the world has grown without a deliberation policy action from the government. The National Insurance Commission Act of 1997 and the Insurance Act of 2003 directly and indirectly provide for about 16 compulsory insurance products. They are only compulsory on paper, but not enforced. In other countries where the insurance sector has grown to support the economy, insurance documents are treated in the same class with tax receipts. But here in Nigeria people are not even aware that it is compulsory to have Occupiers Liability Insurance for their buildings.

There is an urgent need for sensitization and reorientation of the Nigerian population. Policy makers need to approach insurance in the same manner they have paid attention to taxation and banking in the country. The sector remains the most underperforming in the financial services segment in Nigeria, yet full of opportunities. Studies have shown that the sector possesses the capacity to add 1million direct and indirect jobs if the possibilities are fully maximised. The transformation of the sector lies with the government at all levels – federal and state. Buying and selling insurance products in this age should no longer be an elitist affair. The on-going partnership between some telecommunications and insurance companies has shown that individuals can buy insurance products from the comfort of their homes, and maintain their policies just by recharging their phones. These are the kind of innovations required to propel the industry into becoming anoteworthy contributor to the GDP of the nation. The opportunities are there, we only need to develop strategies for maximisation. The population of uninsured Nigerians is a goldmine awaiting appropriate actions. Ultimately, the insurance companies need to perform better in paying claims to policyholders in order to garner trust and change the current public perception.