Insurance industry needs to design budget policies (under micro-insurance regulatory framework) that are accessible and affordable to the poor, vulnerable and the large number of the population through multiple distribution channels to the informal sector of the economy. This would no doubt enhance insurance penetration.
NAICOM should intensify the monitoring and enforcement of the current regulations to deter insurance staff from owning brokerage firms. Insurance companies should improve on customer service strategy. There is also need to strengthen the governance, risk and compliance in the industry in order to meet the customer servicing needs.
Enforcement of NAICOM guidelines to encourage single product line of operations (e.g. micro insurance specialization) should be strictly applied. There should also be strict enforcement of compulsory insurance by NAICOM to deepen market penetration in partnership with NIA and/or other government agencies (such as Federal Road Safety Corps, Federal Fire Service, etc).
The insurance industry has been experiencing price war (rate cutting) particularly when the general insurers scramble for the limited volume of business on offer from brokers. Some insurance companies engage in unethical practice of rate cutting due to cut-throat competition in the industry as these companies strive to gain undue advantage over other competitors. Most of these companies are unable to meet their obligations when the need to pay claim arises, thereby worsening the already poor image of the industry. Many companies with poor underwriting results rely on investment income to pay claims. The industry is heading towards a total collapse if the trend continues, particularly during adverse investment market conditions.
Generally, the companies operating in the insurance industry are price takers and there are not enough guidelines to regulate pricing activities to curb the excessive price-cutting. However, NIA has tried to set up a rating committee in the past to determine minimum rates for few product lines (a process described as self-regulation) in order to curb the rate cutting. However, the process failed because of lack of strict compliance by insurers and also NIA’s inability to enforce/sanction insurers for non-compliance.
Since the self-regulation on rate cutting has failed, NAICOM should develop a risk-based pricing model for each class of insurance products, other than the compulsory insurances. NAICOM (in collaboration with NIA) should establish a premium rate-setting committee comprising five to 10 top market leaders in a given product line to standardize the market premium on an annual basis for that product line. Any company underwriting this class of business is allowed to charge a premium rate different from the market leaders’ approved rate provided the company concerned is able to justify the premium rate differential to the regulator. This will curb the rate cutting and boost profitability of the industry Companies can adopt product differentiation as a strategy to exercise control on product pricing rather than being largely price takers.
Product innovation can be divided into two categories: radical innovation which aims at developing a new product, and incremental innovation which aims at improving existing products.
Product innovation is highly limited in the insurance industry because there is lack of actuarial expertise required to develop insurance products that meet customers’ tastes and market needs. Currently there is little or no product differentiation but more of “plain vanilla” in offering insurance products. Research and development is at best an ad-hoc concept rather than a conscious or deliberate business development strategic initiative. The rigorous process in obtaining regulatory approval for products development also hampers the product innovation.
Products or services should be designed to meet the needs of clients and must be beneficial, fair in price and coverage (e.g., focusing on micro insurance growth). The industry should take advantage of the regulatory initiatives on compulsory insurances under the MDRI introduced by NAICOM.
Poor image and perception
Company’s perception is the consumer’s opinion about the ability of the company’s products (and/or services) to fulfil his or her expectations. The insurance industry has poor public image, negative perception or lack of consumer trust due to companies’ inability to provide adequate services (poor claims management). The industry is perceived as being quick to collect premium but slow/unwilling to respond to claims, a demonstration of lack of professionalism by some insurers, agents and brokers.
Traditional practices (cultural issues) can make consumers averse to insurance, leading to negative perception of the insurance industry. Low disposal income makes the household’s expenditure on insurance to rank low in the scale of preference.
Insurance companies and regulators should increase insurance education and awareness. Products to meet changing consumer needs should be deployed. Good service delivery will lead to positive public image of the insurance industry.
There is need to strengthen corporate governance regime to curb excesses. Partnership with media and advocacy groups to publicize the positive impact/benefits of insurance should be encouraged. Affordability and accessibility should be the key consideration in service offerings to insurance consumers.
The challenges facing the insurance industry and the possible solutions highlighted above (if considered and implemented by all stakeholders) would form the basis for transforming the Nigeria insurance industry to contribute significantly to the nation’s GDP and also to meet international standards.