Nigerians spent ₦356 billion on insurance in 2016. If that sounds high, consider that only 1.5% of Nigerians have any form of insurance, considerably lower than 2.3% in Kenya and 12.3% in South Africa.
Despite Nigeria's insurance industry averaging 10% growth since 2012, insurance penetration remains low, and enforcement is a primary driver. The law requires motorists to at least hold third-party insurance, yet the Nigerian Insurance Association estimates that four out of five cars are uninsured. Many motorists resort to bribes, or counterfeit insurance papers instead.
The government isn't solely at fault; Nigerians are generally apathetic to insurance, perhaps due to cultural and psychological failings. When asked, some go as far as saying “I do not believe in insurance”. Whatsmore a recent survey highlighted that Nigeria’s financially excluded are more interested in learning how to buy shares than about insurance products.
While buying shares increases your financial risks, insurance reduces it.
I do not believe in insurance
Women are more financially excluded in Nigeria. However, two thirds still find a way of saving, mostly for emergencies. Imagine a mother who saves ₦2,000 a month for emergencies versus a ₦2,000 monthly insurance package. After 12 months, she would have saved ₦24,000, which may not be enough to cover the treatment cost of an unexpected illness, let alone ensure her children are supported. When she becomes insured, the financial burden of medical treatment and the welfare of her children would be transferred to the insurance company.
With 70% of Nigerians paying for health treatments out of their pockets, the scope for health insurance is enormous. However, the benefits of insurance do not stop at health. Two-thirds of MSMEs suffer from a lack of access to funding. Taking out insurance policies can derisk their business profile and help them gain loans, and attract investment.
A tale of two floods
Inequality is also pronounced in Nigeria, and those with lower incomes suffer more for being uninsured because they have smaller financial buffers to deal with adverse events. Last summer we saw floods in both Benue and Lagos, but while the wealthy in areas such as Lekki turned to their insurance companies and savings to pay for damages to their homes, the majority of those impacted in Benue were not insured and had to rely on the National Emergency Management Agency for support.
While aid in Nigeria is something that we should always commend when pitted against insurance, the latter should be preferred. Aid is designed to help victims through times of difficulty whereas insurance is intended to restore victims back to how they were before the event.
We can't escape the reality that relative to the wealthy in Lekki, the poor have less disposable income for insurance. This is where collaboration between the government and the private sector can bear fruit. For instance, the U.K government set up a flooding scheme in conjunction with the insurance sector to provide affordable packages for up to 500,000 high-risk households.
Microinsurance, a subsector within the insurance industry, can also play a part in affordable packages to protect the poor. Microinsurance targets low-income individuals, making insurance packages tailored and accessible. Access Bank’s “Better mama, Better Pikin” is a good example. The initiative uses mobile wallets and agents to open saving accounts for rural Nigerian mothers. In return for ₦300 out of a minimum saving requirement of ₦1,000 per month, Access Bank provides up to ₦40,000 in medical insurance and ₦100,000 in life insurance. Indicative reports suggest this initiative has helped reduce infant mortality by 2% and reduced the level of disruption to the progress some of Nigeria’s mothers are making.
Fortunately, the authorities are aware of the need for inclusive insurance in Nigeria. Regulators recently lowered the capital requirements for microinsurers and set explicit guidelines for those that wish to operate on a local government or national level. From this, we should see the number of microinsurers increase, and thus ensure that more Nigerians are not excluded from the benefits of insurance.
Even with all this happening on the supply side, much needs to be done to spur demand for insurance in Nigeria. And while education and awareness are necessary starting points, regulatory action similar to what drove pension penetration in Nigeria may be the most fruitful path. Either way, growth in the insurance sector is critical to ensure Nigeria’s goal of inclusive growth and enabling us to withstand any setbacks going forward.