Penetration has been the bane of Nigeria’s insurance industry over time. In this report OYENIRAN APATA, CHRIS EBONG and OLUSEGUN KOIKI examine the actions and inactions of the sector’s stakeholders in taking insurance education to the grassroots.
Barely 100 years of existence in Nigeria, insurance in the country still remains alien to many despite the effort of stakeholders, including the regulator, to scale up its penetration.
The risk management sector’s current contribution to the economy has been a source of worry to not only the regulator, the National Insurance Commission (NAICOM), but also to the Federal Government who believes that insurance should play its role in the economy as funds mobiliser to keep the country running.
Various studies on the operations of the insurance trade on economic growth globally have proved a connection between insurance economic growths.
One of the few studies is the work of Akinlo and Apanisile in 2014, examined the connection between insurance and economic growth in sub-Saharan Africa from 1986 to 2011 period.
The results indicate that insurance has a positive and substantial influence on the economic growth process of sub-Saharan African countries.
Other studies have also explored the relationship between insurance and economic growth in various countries and found a significant and positive relationship between the variables.
Penetration rate indicates the level of development of the insurance sector in a country, and measured as the ratio of premium underwritten in a particular year to the Gross Domestic Product (GDP).
Within insurance, there is life insurance penetration, which considers premiums from life insurance policies only as a percentage of GDP and non-life insurance penetration, which considers premium from non-life insurance policies like auto insurance and health insurance among others.
The Nigeria Insurance Sector reports put penetration variously at 0.3 to 0.4 per cent, compared with South Africa with 16.9 per cent and Kenya 2.9 per cent penetration, respectively makes the insurance sector a non-starter.
This implies that less than 1 per cent of about 200 million Nigeria’s population holds one form of insurance policy or the other, considering that the industry, which started in 1921 is actually older than those of China, India and Malaysia.
Concerned about this dismal expose, analysts are worried given the vast advances in insurance practices in those climes, why things have remained in the current sorry state in Nigeria.
By global standards, Africa’s insurance industry remains relatively underdeveloped, accounting for just under 1.2 per cent at $0.06 trillion of insurance premiums written globally, while Asia is $1.62 trillion, Europe $1.47 trillion and North America $1.46 trillion.
Stakeholders are also worried that despite the different products and strategies introduced in the insurance industry over the years, growth of the sector in Nigeria has not moved upwards than 1 per cent, compared to other African countries including a country like Ghana, which is running at 2.5 per cent.
They, however, noted that the drive to grow the insurance industry by increasing its contribution to the nation’s GDP is a collective responsibility of both the government and all companies in the sector.
Mr. Sunday Thomas, Deputy Commissioner for Insurance, Technical, National Insurance Commission (NAICOM), who spoke during Chartered Insurance Institute of Nigeria (CIIN) Business Outlook in Lagos, recently, said the industry during the third quarter of 2018, recorded a 22 per cent increase in Gross Premium Income (GPI), Year-on-Year to N315 billion from N258 billion recorded in the corresponding period of Q3 2017.
He said the gross claim figure for the period under review increased by 30 per cent to N143 billion from N110 billion in 2017.
By global standards, Africa’s insurance industry remained relatively underdeveloped, accounting for just under 1.2 per cent at $0.06 trillion of insurance premiums written globally, while Asia is $1.62 trillion, Europe $1.47 trillion and North America $1.46 trillion.
He said: “Insurance penetration across the majority of countries in Africa remains very low; South Africa remains the most dominant with about 16 per cent while other large countries, such as Nigeria, remain drastically underpenetrated
“Looking ahead, it is expected that global life insurance premium growth will improve over the next few years while advanced markets are expected to grow at a moderate pace, emerging markets are set to outperform, mainly driven by strong growth in China.
“The global non-life sector is expected to improve, supported by advanced markets due to a solid economic environment, especially in the United States (U.S). In emerging markets, non-life premium growth will remain robust, but slightly lower than in the recent past due to less strong growth in emerging Asia and ongoing soft rates.”
Anthony Okocha, Non-Executive Director and Interim Chairman, Board of Directors, African Alliance Insurance Plc, has said the sector’s penetration in Nigeria had remained at a very low level.
According to him, despite the different products and strategies introduced in the insurance industry over the years, growth in the sector had remained lower than 1 per cent, compared to other African countries.
Okocha said this at the launch of African Alliance Insurance Plc’s new corporate brand identity, which held in Lagos, recently.
He said: “Nigeria’s insurance sector is performing poorly when compared to other African countries like Ghana, our neighbour, and South Africa. Ghana is running at 2.5 per cent, South Africa is closing up to about 14 per cent, while we are at less than one per cent in Nigeria.”
Okoch, however, noted that the drive to grow the insurance industry by increasing its contribution to the nation’s GDP was a collective responsibility of both the government and all companies in the sector.
According to him, “The National Insurance Commission (NAICOM), is spearheading the drive, and all other companies are trying to do what we are doing in African Alliance, which is to awaken public consciousness as to the need for insurance in Nigeria.
“The government also has a lot of roles to play. There is what is called compulsory insurance. When you go to any civilized country in the world, there are several classes of insurance that are compulsory but we only have a few in Nigeria. Those types of insurance are what the government needs to put in place. There is one, for instance, called construction insurance which is also supposed to be compulsory but most times, people are not even aware of this.”
He maintained that the government must do its part in composing and implementing enabling laws for the insurance industry to thrive, saying it was the only way the nation could deepen inclusion in the sector, noting that although the insurance products had remained the same over the years, the manner of underwriting risks had continued to change, adding that 60 years ago, there were no technologies like we have today.
“Today, you may sit at home and buy policies without even knowing where the insurance company is located, and the impact of technology today is not what it used to be, and we should maximise that,” he added.
Funmi Omo, Managing Director, African Alliance Insurance Plc, said the underwriter was set to increase awareness on insurance products, and would redeploy strategies to gain traction to youth.
“The whole idea is to use strategies to deepen penetration in the industry, and we are sure that we would deepen penetration particularly with the youths and we intend to sustain it,” she added.
Insurance apathy in Nigeria has been attributed to many factors ranging from low income by most working bracket in the economy coupled with religion culture and belief system, low level of insurance education and awareness.
To tackle these challenges, the insurance industry regulator, NAICOM and the operators have been on each other’s’ neck in finding solution to crushing the menace.
For the regulator, the operators had not been making enough efforts in marketing the five compulsory insurances and take advantage of the retail space to deepen penetration, while operators posit that enforcement of compliance had to do with the government, noting that they could only market the products and where the consumers were not disposed to buy-in there was little or nothing they could do.
According to them, enforcement of the law would make a great difference if the government supported insurance and also led by example by embracing it at all tiers.
Meanwhile, the NAICOM has introduced a number of initiatives geared towards achieving this singular objective. These include the Compulsory insurances; Builders’ Liability Policy (The Insurance Act 2003/The Lagos State Building Control Law 2010), Occupiers’ Liability Policy, Employers’ Liability Policy (Group Life), Employers’ Liability Policy (Workmen’s Compensation Act 1987 – Now repealed), Healthcare Professional Indemnity Policy (The NHIS Act 1999) as well as Motor Third Party Liability Policy in accordance with The Insurance Act 2003.
An insurance policy is said to be made mandatory to make for easy compensation of victims in the event of any loss caused by the negligence of the policyholder.
To support this initiative, the Lagos State Government had issued a statement about enforcing the state’s Insurance Act 2003.
The Act made it compulsory for all buildings in the state to have an insurance cover. The reason behind the statement was the incessant building collapses in recent times in the state. These collapses usually leave victims without compensation who then turn to the government for relief. If there are insurance policies forces by such building owners, the case would be different.
Furthermore, the Act made it compulsory for individuals and companies to possess some form of insurances marked compulsory.
These insurances, when in force would reduce loss and non-compensation of victims of accidents caused by the negligence of others.
What Are Compulsory Insurances?
Compulsory Insurances are insurances made obligatory by legislation to provide protection to the third party and the general public. Most of these policies are not as expensive as you think.
For instance, you can purchase a Third Party Motor Insurance for as low as N5,000.00. Not all insurances are compulsory, but most of the compulsory ones are to compensate the general public for loss, death or bodily injury.
Bird’s Eye View of the Compulsory Insurances
Builders’ Liability Insurance: This type of insurance provides compensation to victims (workers and the general public) for loss of property, death and bodily injury. This cover is usually taken up by owners or contractors of structures/buildings under construction of more than two floors. The policy responds when there is building collapse and other risks related to building construction. Under the laws (Federal and Lagos) failure to comply with the policy attracts a penalty of N250,000 in addition to three years’ imprisonment, sealing and demolition of the affected building.
Occupiers’ Liability Insurance: This policy is taken up against liability of the members’ of the public for loss or property damage, death or bodily injury occasioned by fire, collapse, storm, earthquake, storm, flood or any allied peril. The cover is required to be purchased by owners or occupiers of every public building. Under the Nigeria Insurance Act 2003, a building is public when the owner does not use it fully (i.e. 100%) for residency purpose. Examples of public buildings include hostels, tenanted buildings, residential buildings occupied by lodgers, tenants, etc. Also, a public building is one in which people enter and exit for educational, recreational or medical services such as schools, hospitals, malls, etc.
A maximum fine of N100,000 or one-year imprisonment or both is the punishment for defaulters. Sealing-off or demolition of the affected building is the sanctions under the National Insurance Act 2003 and the Lagos State Building Control Law 2010.
Employers’ Liability Insurance (Group Life Insurance): This policy provides compensation to employees in the event of death, disability, critical illness, and disappearance while in service. The policy also helps to subsidize pension provision in the event of mental or physical disability. Under the Pension Reform Act 2004, the policy is required by employers with more than 4 employees. However, for employers that refuse to comply, the penalty is N250,000, a record of conviction and sealing off of the business premises of such are the punishments.
Healthcare Professional Indemnity Insurance: This policy compensates victims (especially NHIS patients) who due to negligence, error, mistakes, acts of commission or omission of Medical Practitioners and institutions suffer Death, Sickness, Partial and/or Permanent Disability.
Under the National Health Insurance Scheme (NHIS) Act 1999, all medical professionals, institutions, and centres are required to have Healthcare Professional Indemnity Insurance. The compensation depends on the number of beds in the hospital. It is a serious offence not to comply with this Act. The penalty is that the offender is prosecuted for involuntary murder or and revocation of the permit of the medical institution.
Motor Third Party Liability Insurance: This is the minimum insurance cover that every motorist should have. It is criminal to drive a vehicle on any public road without insurance. It is compulsory for all vehicle owners either private or commercial vehicle. The Third Party Motor insurance provides compensation to the third party in case of an accident for death, bodily injury and property damage. The life cover is unlimited but reasonable while the property damage is N1million.
Under National Insurance Act 2003 Section 68, “No person shall use or cause or permit any other person to use a motor vehicle on a road unless a liability, which he may thereby incur in respect of damage to the property of third parties is insured with an insurer.” The penalty for failure to comply is N250,000 or one year imprisonment or both.
Other initiatives by the NAICOM to further promote insurance penetration are the microinsurance, bancassurance model, takaful among others.
The NAICOM believes that if the operators adequately take advantage of these windows, insurance will grow its gross premium to about one trillion naira which would translate to a 3.0percent contribution to the nation’s GDP.
Operators on their part are designing products that meet the immediate needs of insurance consumers at affordable rates. These efforts put together, according to market watchers, it is believed would engender insurance penetration in the country.
Stakeholders in the insurance industry have joined voices in calling for an industry-wide awareness creation on the benefits of insurance products and services as a way of improving insurance penetration.
Insurance practitioners and consumers who turned out from far and wide to grace the sector’s event held in Lagos recently did not stop at anything in looking inwards to actually uncover what is really behind the myth surrounding the public apathy for insurance.
After critical analytics of the situation, from one presentation to another it was obvious that Nigerians are ignorant about the benefits of insurance, it was not far-fetched a conclusion that there was low awareness of the benefits insurance products and services among the populace.
At these juncture insurers were tasked to intensify their awareness campaign to educate the public on what it can provide for them.
Mr Rasaaq Salami, Deputy Director, NAICOM and a guest at the event, while speaking on ‘The Role of Insurance in the Development of the Nigerian economy’ decried the low insurance contribution to the country’s GDP.
According to him, operators should show dedication by committing their resources into educating the public on the benefits of insurance.
“Part of what we are doing here today is something I believe will add value to insurance growth and development and engender insurance penetration which in the long run will add up to sectors contribution to the overall development. And that is key because at the moment, insurance is not contributing much to the GDP.” said Salami.
Continuing, he stressed the importance of insurance in the protection of the government, corporate entities and individuals assets, adding that for the poor insurance culture, the government has become a sole insurer when there is a natural disaster in Nigeria.
“We saw recently, the collapse of buildings in Lagos, lives were lost and properties were destroyed. Imagine if all of these were insured the insurance companies will bear the burden to pay compensation. But as it is you find government dipping its hands into already strained resources to compensate victims of such disaster.
“Those are the resources that ought to have been channelled to other development areas that would impact on the people. That just explains the importance of insurance to the economy and the same with corporate entity and individuals”, he added.
Mrs. Yetunde Ilori, Director-General of the Nigerian Insurers Association (NIA) noted that research both within the insurance industry and outside sources has proved that low insurance benefits awareness was the bane of the sector.
“What you are also doing here is a laudable one because of the research from the entire economy about insurance points to low awareness. Low awareness for insurance benefits….when we talk about motor and all other ones, the compulsory insurances as well as life insurance.
“When you talk about the role of insurance in the economic development of Nigeria, it’s something that we need to preach and say it loud and clear. A lot of people would have gone into business with the peace of mind that you cannot imagine. A lot of people would have been able to take risk enough if they appreciate how much insurance will be there to help them when the unfortunate happens”, said Ilori.
According to her, the NIA is working with the media to take the message of insurance to the grassroots, adding that it was the decision of the association to give a lot more publicity too so that people can own the ventures that they always dreamt about with the peace of mind knowing that insurance would always be there if the unfortunate happens, while banks would be at home to grant credit facilities to businesses knowing that the credit facilities they advanced could turn bad because there were some specialists that would share their risks with them.
She urged Nigerians to embrace insurance as a financial measure for future sustenance of the family values.
Mr. Fatai Adegbenro, Executive Secretary, Nigerian Council of Registered Insurance Brokers (NCRIB) also highlighted the benefits of insurance to include financial protection, security, and guaranteed income for life, children’s education, source of business capital among others.
