After years of tinkering with the idea of micro-insurance, including the commission of a study to ascertain among other reasons, that the country’s business space and populace were ripe and ready for the introduction of micro-insurance, the decision of the National Insurance Commission (NAICOM) that granted 16 operational micro-insurance licenses has returned the sector to the front burner of economic discourse in the country with stakeholders in agreement that the potentials to make a success of the initiative were in place.
Though the initiative, findings revealed, enjoyed widespread acceptance among a cross section of industry watchers, analysts and practitioners alike, what seemed a minority opinion suggested that the introduction was coming ahead of its time and hinged the conclusion on low awareness and penetration ratings of insurance services and products among the populace.
Findings by THISDAY, which was corroborated by some of the respondents to enquiries by this newspapers indicated that globally, the insurance sector is driven by population, economic growth and industrialisation, and improvement in markets feasibility. However, the situation in Nigeria typifies the opposite of this scenario as insurance remains significantly unpopular among the Nigerian public. This is notwithstanding the optimism often expressed that the industry will be the next growth sector after the banking sector in the post consolidation of 2005; its performance, despite all efforts at reforms and the enforcement of the six compulsory insurances by the Insurance Act of 2003, remains below its potentials.
According to Head of Intelligence and Research, BGL Securities, “Less than 1,000,000 adults currently have insurance policies in Nigeria, a country of about 85 million working population. One key reason for the low growth of insurance is the non-enforcement of insurance law. However, another important reason for the low insurance penetration is that the public do not understand the importance of insurance and do not trust the process as well. By bringing it close to them through the licensing of micro-insurance companies, insurance operators will be able to get closer to the public, explain the importance of insurance in the language they understand and create products that fit their lifestyle and need. The industry will benefit from the expanded market and the increase in income while the economy will benefit from the significant savings that it portends.
Before the granting of the license, NAICOM had commissioned a nationwide diagnostic study on micro insurance in collaboration with a German company, GIZ; Access to Insurance Initiatives and some local consultants. The study was premised on the contention that given Nigeria’s vast population, the potential for micro-insurance market was huge and remained largely untapped by insurance companies operating in the country.
Micro-insurance, while providing a platform for the insurance companies to enlarge their frontiers and increase their market share, also provides the insurance industry as a whole the opportunity to enhance insurance penetration amongst the populace most especially rural dwellers, many of who do not understand the basics and benefits of insurance.
It will be recalled that the development of the micro-insurance market is one of the objectives of the Market Development and Restructuring Initiative, (MDRI) of NAICOM which the commission created and has supported as an enabling platform to continuously raise industry awareness on its development.
Speaking on the license issuance, Commissioner for Insurance, Mr. Fola Daniel, said that “We have licensed 16 micro-insurance firms.” According to the commission, all third party liability risks, with the sum assured above N1 million were excluded from micro-insurance business. It also pegged the minimum capital base at N150m and N200m for life and non-life insurance respectively
He was reported to have also assured that the commission would grant operating license to any firm that is willing to take part in micro insurance scheme, while the commission intends selling micro insurance products through co-operative societies, micro finance banks among others to Nigerians.
Daniel maintained that micro insurance holds great potential for developing the insurance sector in the country, taken into consideration the fact that the population size of the country gives an added advantage to the insurance industry to grow its market.
“What is now required is for the industry to evolve an appropriate strategy to enable it harness these potentials. This is what we intend to achieve with the development if micro insurance in Nigeria” he said.
According to President Nigerian Council of Registered Insurance Brokers (NCRIB), Ayodapo Shoderu, the initiative was in order and was capable of further expanding the industry as well as aid insurance practice acceptance and penetration in the country. Responding to THISDAY enquiries, Shoderu also disagreed with opinions from a section of the sector who argued that the “decision was good but premature.’
“The licensing of micro-insurance is one of the best initiatives that could further move the Nigerian insurance industry forward. You will recall that close to three quarter or more of our nation’s population are domiciled at the grassroots or undertake one form of small business or the other which were not captured by the conventional insurance companies. This initiative will galvanize these new companies to break grounds realising that their survival depends on it. If the practice of micro-insurance thrives in many developing countries like Malaysia, Indonesia, Philippines; there is no reason why ours would be an exception,” he stated.
While some industry watchers opined that “the decision was good but premature” adding that “there was the need to first grow insurance penetration from its present low perception rating among the populace before insurance covers are marketed to them; Shoderu disagreed that the initiative was coming ahead of its time.
“I do not subscribe to the views that the grant of the licenses is premature, especially when you view this against the several efforts being made by the National Insurance Commission (NAICOM) to grow the industry. There had been the MDRI initiative which was to encourage financial inclusion of all and sundry in the country.
“Also, I see the initiative growing the industry rather than shrinking it. We cannot fold our arms and wait because the industry is not as well received as expected. New grounds should be broken, and I think that is what the licensing has done,” he contended.
On his part, Ademola agreed that perception may be low, but did not agree that it was enough reason to assume that the coming into operation of micro-insurance was premature. He argued that the low perception and awareness of insurance products and services among the target market of the micro-insurance services may be traceable to the unavailability of products that meet the need of the target markets and lack of enlightenment process driven by the operators.
“While it is true that the perception of the roles of insurance and its penetration is low in the grassroots, the reason for that is probably because they do not have operators that is patient enough to explain to them comprehensively, listen to them and their needs and create products and premium payment terms that meet their needs in return. Just like the experience with the microfinance banks, which started due to the non-availability of banking services in the grassroots, micro insurance also has roles to play in financial inclusion of the hitherto excluded persons. Underwriting of mobile phones and other portable devices could attract young people while insuring of farming tools and other business equipment may be useful for sub-urban and rural dwellers. In my opinion, it is worth the trial,” Ademola insisted.
Speaking further, on the need to ensure the success of the new initiative especially among players in the industry, Shoderu said that “On the part of our Council (Nigerian Council of Registered Insurance Brokers), we shall continue to provide the needed impetus for this form of insurance to survive. Insurance brokers are the best professionals that could compliment this initiative going by the fact that we have the greatest population strength of about 600 members spread across the nooks and crannies of Nigeria. What we need is to re-orientate our members and that is what we have started doing. The Council just had a seminar for its members on micro-insurance and takaful and we have plans to do more,” he added.
Also speaking to THISDAY, Calabar, Cross Rivers State based insurance practitioner, Ismaeel Fashola hailed the move and reasoned that the fact that micro-finance banks could survive when they are well managed was a clear proof that Nigeria was ripe for micro-insurance companies. He added that it will cater for the cover need of rural dwellers across the country as well a segment of urban dwellers.
“The several millions of Nigerians who live in the rural and semi-urban areas are a handy market for micro insurance to thrive. They are also exposed to certain risks even at their economic level and as a result of where they reside and do businesses in. I believe the 16 micro-insurance licensees will boost insurance penetration the more especially among people whose earning puts at the lower run of the economic ladder; the beneficiaries would be able to open up new frontiers for the industry and access areas that traditional insurance have not been able to so far,” Fashola explained.
Underwriting business is a very risky business because of the uncertainty of when a loss will occur which requires claim settlement. Expectedly, Non-life insurance attracts even more risks since the risks involved are uncertain in both time and amount of claim. Therefore, to function properly, industry insiders opined that an insurance company must be adequately capitalised.
Meanwhile reacting to questions on the adequacy of the minimum capital stipulated for the new micro-insurance, Ademola told THISDAY that “The capital base released by NAICOM was okay. Since the focus of these companies provision of micro insurance covers, the minimum capital of N150m and N200m for life and non-life insurance respectively is ideal to start with. And since there are some regulatory measures and ratios that must be met, it will limit the extent of risk that the companies can take unless they increase their capital,“ he concluded.