Ten years after the launch of the microinsurance initiative in Nigeria, Ebere Nwoji delves into its effectiveness in extending insurance coverage to low-income Nigerians.
The development of microinsurance operations in Nigeria was a key reform initiated by the National Insurance Commission (NAICOM) a decade ago, aimed at promoting financial inclusion and increasing insurance penetration across the nation. Specifically, this initiative began in September 2014, a year marked by numerous policy reforms designed to foster growth within the sector through enhanced insurance awareness among the populace.
Other significant reforms introduced by NAICOM included mandatory insurance policies, increased public awareness, promotion of retail insurance, the adoption of Risk Based Supervision, transitioning from Nigerian Generally Accepted Accounting Principles (NGAAP) to the International Financial Reporting Standards (IFRS), market conduct reforms, claims settlement revisions, and strategies to combat financial crime, among others. All these measures were directed at strengthening the industry and improving the public’s perception of insurance.
As we reach the ten-year mark, a critical assessment of the microinsurance reforms raises important questions about the effectiveness of these products in reaching low-income earners in Nigeria.
Defining Microinsurance
Microinsurance is essentially defined as insurance coverage designed for low-income households or individuals with minimal savings. It is specifically tailored for lower-valued assets and provides compensation for various risks, including illness, injury, or death. A subset of microfinance, microinsurance aims to support low-income families by offering insurance plans that suit their specific needs, typically featuring lower premiums.
Similar to various other African nations such as Uganda, Namibia, and Ghana, Nigeria embarked on developing its own microinsurance market around the same time. However, closer scrutiny of insurance penetration at the grassroots level suggests that there is still much work to be done. Despite the availability of microinsurance products, many Nigerians at the lower economic strata continue to shoulder risks independently when faced with unexpected events.
For instance, instead of leveraging microinsurance products to mitigate their risks, many low-income earners still bear the losses of stolen or damaged possessions without assistance for replacements. Additionally, some individuals pay microinsurance premiums but find themselves without coverage due to a lack of understanding.
An example can be seen among small-scale traders who secure minor loans from microfinance institutions but inadvertently pay for insurance that is not part of their loan agreement. Meanwhile, transport company owners at various bus terminals collect microinsurance premiums from passengers yet fail to remit these funds to actual insurance firms. Consequently, even if an accident occurs, passengers may find themselves exposed to risks, despite having paid for what they believed was insurance coverage.
Industry analysts suggest that for microinsurance to fulfill its intended purpose, stringent monitoring and supervision are crucial.
NAICOM’s Efforts
NAICOM has played a pivotal role in these initiatives by releasing guidelines for microinsurance institutions and establishing a 14-member steering committee comprising representatives from various stakeholders in the financial services sector to facilitate the success of the microinsurance program.
According to NAICOM, these guidelines aim to enhance collaboration between insurers and microfinance banks, enabling traders, artisans, and low-income earners to access loans that are underwritten by participating insurers. The guidelines also set forth minimum standards for the conduct of microinsurance in the country.
After a decade, a thorough examination of the microinsurance initiative reveals that its progress has been slow, evidenced by the limited number of operating microinsurance institutions in the nation.
Operator Contributions
Following the release of the guidelines, insurance operators actively promoted microinsurance in Nigeria. Many collaborated with mobile phone operators to distribute insurance products. For example, Mutual Benefits established the first insurance franchise in Nigeria, and both operators and regulators pursued the Takaful insurance project with enthusiasm.
To enhance the effectiveness of the microinsurance initiative, NAICOM permitted conventional insurance companies to introduce microinsurance window operations in 2020, provided they adhered to specific conditions. Among these conditions, insurers must seek approval from NAICOM to conduct microinsurance business and ensure their microinsurance department is led by an experienced insurance officer.
Despite significant market potential, analysts believe the introduction of these guidelines signals a positive shift in the Nigerian microinsurance sector, highlighting the importance of low-income insurance distribution. The guidelines clarify that the maximum sum insured under a microinsurance policy cannot exceed N2,000,000 per individual per insurer. It also mandates that these policies be accessible to the target market through unconventional delivery channels such as microinsurance agents, cooperative societies, mutual benefit associations, microfinance institutions, religious organizations, NGOs, and various registered groups.
The Role of NAICOM
The NAICOM Act establishes the National Insurance Commission as the primary regulatory authority overseeing Nigeria’s insurance sector, including microinsurance. It delineates the rules and standards that microinsurance providers must follow to ensure consumer protection and maintain financial stability.
The Insurance Act of 2004 also governs all insurance activities in Nigeria, including microinsurance, by laying down the legal framework for insurance contracts, premium rates, and company licensing. Within the guidelines, NAICOM has categorized capital requirements for microinsurance companies into distinct categories.
Currently, NAICOM has licensed eight microinsurance companies and four takaful insurance firms, including Goxi Microinsurance, LifeGuard Microinsurance, and others. Despite these advancements, sector analysts note that many Nigerians remain outside the insurance safety net.
Insurance agents and marketers have expressed that they have yet to achieve substantial success in marketing these products. One agent, Sandra Onyeji, highlighted that transport costs, inflation, and the depreciating value of the naira have hindered their marketing success. She emphasized that while there is a push for digital marketing, many potential clients, particularly rural dwellers, are not digitally inclined.
In her view, it may take several more years to effectively promote microinsurance products through digital means. Nonetheless, she believes that current market responses indicate a promising future for microinsurance in Nigeria.
Industry analysts emphasize the importance of awareness in popularizing microinsurance. Many Nigerians remain unaware of its benefits, which underscores the need for initiatives like NAICOM’s partnership with the Chartered Insurance Institute of Nigeria to train youths in insurance. This presents an opportunity for industry leaders to engage young people in promoting microinsurance and other insurance products across the country.
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