Nigeria has seen impressive economic growth in the past decade. It is one of the “next 11” countries (N11) identified by the investment bank Goldman Sachs in 2005. These countries have a high potential of becoming the world’s largest economies in the 21st century, along with the BRICs. Economic development leads to the development of insurance markets, but this development has not yet reached low-income clients in Nigeria.
As part of its financial inclusion activities, the National Insurance Commission (NAICOM) of Nigeria together with the German Agency for International Cooperation (Deutsche Gesellschaft für Internationale Zusammenarbeit – GIZ), Making Finance Work for Africa (MFW4A) and the Munich Re Foundation organised the "International Microinsurance Conference Learning Session Nigeria". The Nigerian Insurers Association (NIA) and the Microinsurance Network were partners of the event. About 250 stakeholders from Nigeria’s insurance sector and related parties discussed options for the promotion and practical implementation of microinsurance. The event created momentum and was an incubator for new ideas to increase (micro)insurance penetration in the country.
Making insurance work for the low-income market in Nigeria
In the opening session, experts discussed the findings of two important studies* and developed ideas for future activities. According to a “diagnostic study” analysing microinsurance in Nigeria, financial exclusion is high, and the gap between the urban and rural populations is wide. Concerning assets, the banking sector is the second largest in Africa. But according to World Bank data, over half of the adult population is still completely financially excluded. Less than one per cent of Nigeria’s population has insurance. The country even ranks behind the Republic of the Congo and is far from the level of other N11 countries such as the Philippines (7%).
“Not all Nigerians participate in the economy and we need to recognise the role of insurance in enabling participation” said Ms. Arunma Oteh, Director General of the Securities and Exchange Commission which is supervising the financial sector. “Access to microinsurance is crucial in the country’s transformation process”, the Director General added in her welcoming address.
Trust is key
“According to results from the “diagnostic study” analysing microinsurance in Nigeria, the market is lacking good products and trust” said Denis Garand, one of the world’s most experienced actuaries in the field of microinsurance. “Without good microinsurance, we will not see sustainable development” added Michael McCord, President of the Microinsurance Center, and author of the African “Landscape Study”. McCord summarised key findings from another study, “The Landscape of Microinsurance in Africa as follows: “An insurance industry not recognising the potential of the microinsurance market, products that do not meet the needs of the poor and a lack of trust are the main reasons spoiling market development”.
“Only some 5% of the insurance companies in Nigeria are currently providing microinsurance. But this is not the way to go! The market is just starting”, said Thomas O.S., Director-General of the NIA. The industry has acknowledged that establishing trust is one of the key challenges to increasing market penetration. “If the client manages to pay premiums, we have to be able to pay claims” he added. “We are aiming to work on this and to bypass Ghana’s insurance penetration within the next two years”, concluded the Director-General of the NIA.
Regulation must create an enabling environment
To make microinsurance more affordable, the NIA requires NAICOM to lower market-entry barriers through lower capital requirements or tax benefits. The example of the Philippines has shown that this can have a substantial positive impact on market development. Furthermore, lack of knowledge remains a problem. Jointly with donors and the industry, NAICOM aims at working on education for providers as well as clients to raise awareness. A better understanding of the market is key. The conference is just a start and we will need follow-up events.
“We also have to use technology, develop innovative products and – even more importantly – develop a long term strategy” said Jide Oniwinde, Deputy Director Corporate Strategy of NAICOM. The Commission has developed a work plan to address these issues, to adjust regulation and to tailor policies to the needs of providers and clients. Jide Oniwinde especially welcomed companies wanting to use mobile phones as a distribution channel. This has been proven to have high potential to boost market development in countries like Kenya and Ghana.
The discussions clearly showed that single actors alone will not succeed in making insurance available for the poor. Success will only be achieved through close cooperations, e.g. between the regulators and the insurance industry. Good distribution channels supported by donor organisations and microinsurance experts will enable the development of good products, which provide value for the client and profitable business for the industry. “Nigeria is a hidden microinsurance giant” concluded Dirk Reinhard, Vice Chairman of the Munich Re Foundation and facilitator of the opening session. “This event is an important continuation of a process that started with the Nigerian country diagnostic study in 2012. It is great to see that NAICOM and the NIA with the support of donors such as GIZ are ready to tap the market and overcome the challenges”.
* “The landscape of microinsurance in Africa” carried out by the Microinsurance Centre published by Making Finance Work for Africa and the Munich Re Foundation and the diagnostic study “Towards inclusive insurance in Nigeria – An analysis of the market and regulations” published by NAICOM and the a2ii.