Nigeria’s insurance penetration is still quite low. Although insurance acceptability by Nigerians is gradually gaining traction, its contribution to the Gross Domestic Product (GDP) annually is still quite low compared to other sectors in the financial services space. However, the National Insurance Commission (NAICOM) has a target to attain a N6trillion yearly premium fund, starting from 2030 through ongoing reforms.
In this analysis, data obtained from the commission on insurance penetration indicates that the sector’s contribution to the Nigerian GDP was at one per cent in 2021. This is even an improvement from 0.48 per cent as at 2016.
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There are also marginal improvements in the gross written premium in the industry over a five-year period.
The NAICOM data on insurance penetration show that the total policies written by the underwriters are 2,485,763 (2.4 million). This comprised of policies held by individual Nigerians (1,334,855 0r 1.3m) and corporate and non-individual policies (1,150,908).
For an adult population of more than 100million Nigerians and millions of businesses entities, the industry can indeed do better in terms of penetration and premium income. About two per cent of the adult population is said to have some form of insurance.
The Gross Written Premium at 2021 is N630billion, representing a 23 per cent increment from 2020. The industry achieved N514.58bn (1.25%) in 2020 and N508.23bn (19.24%) in 2019.
In spite of the modest gains, industry watchers and experts have concluded that the industry is performing optimally, given the huge potentials that exist in the industry, especially leveraging the compulsory insurances that have largely remained unenforced. Based on this, the regulator and the industry operators have agreed to further develop the market, leveraging market development and innovation, with a strong bias on information and communication technology drivers.
The commissioner for insurance and chief executive officer of NAICOM, Mr Sunday O. Thomas, recently said his administration had a “cardinal agenda of developing the market and deepening penetration.” He reckons that the development and growth of the insurance sector would translate to the growth and development of the country’s economy.
The commission has been implementing various market developmental initiatives to grow the insurance sector through risk-based supervision framework, investment in digital capabilities and automation; example, the launch of NAICOM portal and Bimalab Project on February 9, 2021; enforcement of compulsory insurance products in Nigeria via a partnership with agencies and states; capacity development programmes – actuarial, competency framework etc; sensitisation of various stakeholders – MSMEs on benefits of insurance, ministries, departments and agencies’ insurance desk officers, and the introduction of regulatory reforms and policies like the issuance of web aggregators’ guidelines.
“The Nigerian insurance market has undergone substantial structural and regulatory reforms over the years following the market development initiatives being implemented and evolution of Nigeria’s financial sector in the last decade, which has been characterised by digital transformation,” Mr Thomas noted.
He further explained that the development of the market is an all-inclusive one from the creation of avenues to deepen insurance penetration to increasing access to insurance products via digital platforms and increasing visibility of insurance across the nooks and crannies of the country.
The recent partnership with Financial Sector Deepening (FSD), Africa to launch the Bimalab Nigeria is aimed at accelerating the insurtech innovation. Also, the NAICOM will soon be unveiling its sandbox to give room for innovative expansion of insurance reach. The web aggregators’ guideline is also aimed at opening access to insurance, and also a means of creating a convenient market for insurance.
This means the commission is focusing on using technology to boost access to insurance as that seems the way to go under the prevailing circumstance.
One sore point in Nigeria’s insurance space is claim default by insurance firms. The commission has come hard on insurance firms lately, and it has further announced plans to hold companies to account on genuine claims.
As a solution, Thomas said, “We all agree that we cannot claim ignorance of the fact that the industry is paying huge claims out there, although activities of few amongst the operators are jeopardising the efforts of the majority. We had, before now, agreed to start ranking companies on the number of claims received and settled on an annual basis; and we intend to publish such ranking for insurance consumers. It is always an issue that puts the entire industry on the edge.”
Speaking specifically on NAICOM’s market development initiatives and the journey so far, Alhaji ‘Rasaaq ‘Salami, the head of Corporate Communications & Market Development, NAICOM, said Market Development and Restructuring Initiative (MDRI), was launched in 2009 with an initial target to deepen insurance penetration and increase sector’s contribution to GDP; increase the gross premium income from N164billion to N1.1trillion; drive enforcement of compulsory insurances; fight against fake insurance institutions, grow the insurance agency system, and in the process, create 50,000 new jobs by 2012. It was also to lead to financial inclusion.
He said the MDRI had been reviewed with new targets. With the new targets, the industry is expected to create over 250,000 new jobs; improve insurance consumer trust and confidence in the sector; increase insurance contribution to the GDP to over 3.0 per cent; lower the insurance gap from 94 per cent to 70 per cent and increase industry gross premium income from N630b in 2021 to N6.0trn by 2030.
Speaking on “Improving Access to Insurance in Nigeria through Digital Solutions,” Abiodun Aribike, the deputy director, Department of Information Technology, NAICOM, said low insurance penetration could be increased through the adoption of technology and digital solutions.
He said this was because digital technology had taken the world by storm, which is affecting, changing and improving the way things are done.
“It is disrupting traditional operating structures and industries, such as telecommunications, media, entertainment; and consumer products have been impacted in the way they attract and retain customers.
“The insurance industry is currently lagging behind and needs to reassess its business model, re-evaluate their strategy and make the digital agenda a high priority.
“If this is not done, it will be difficult to deliver on customers’ expectations,” he said.
Thus, it is time for insurers to evolve and respond, and this will require a different set of skills, culture and operating model.
He said the adoption of the following technologies would help in providing digital solutions for increased insurance penetration. They include cloud computing, mobile technology, artificial intelligence, distributed ledger technology block chain, Internet of Things (IoT).
Mobile technology has been particularly tipped to be the major disruptor. Nigeria, as at September 2021, had 195,128,265 active GSM lines. About 90 per cent of the population has mobile phones, 50 per cent are connected to the internet and 32 per cent have smart-phones; and these are potential markets for ratcheted insurance products.
“The technology can be used to communicate and provide products and services. Smart-phones can be used to engage policyholders, capture data, spot trends and provide tailored insurance products to customers.
Block chain technology can ensure claims register, fraud detection and faster verification of transactions,” Aribike said.
On products’ development in a digital age, he explained that “product innovation came from an adequate understanding of customers’ desires, needs and wants (both emotional and practical) and the ability to quickly get those products to them through the most relevant channels.
“There is also a need to build innovation into the whole fabric of the organisation,” he added.
He also noted that to drive penetration, “instead of building products to address an extensive set of risks, companies should design products in response to specific customer needs and challenges, some of which may not be obvious. Insurers should stay close to their stakeholders and continually deliver what customers need in the fast-changing digital world.”
Also, in order to reach a new segment of the market, address new customer expectations and meet customers at their points of need in the digital age, there is a need to explore new channels of distribution of insurance. While the agent/broker channels or the direct distribution models are not going away, there is a need to expand distribution beyond traditional channels, he noted.
Thus, to reach the target of N6trn premium income in 2030, the insurance industry needs to catch up quickly with new technology, innovations, changing environment (from traditional to digital), developments and changing customer expectations.
But how the industry responds to the proposed targets in 2022 will determine if the projections would be followed through or not.
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