Insurance is considered as one of the most effective means of reducing the vulnerability of the poor from the impacts of disease, theft, violence, disability, fire and other hazards. Insurance protects against unexpected losses by pooling the resources of the many to compensate for the losses of the few, the more uncertain the event the more insurance becomes the most economical form of protection
In the developed world insurance is part of society, such that some forms of cover are required by law. In developing countries the need for such a safety net is much greater, particularly at the poorest levels where vulnerability to risks is much greater and there are fewer opportunities available to recover from a large loss.
in the developed economies there is a high level of insurance penetration in the population such that 70 to 90 per cent of the citizens usually possess at least, one insurance policy. On the contrary, the insurance penetration in developing countries is very minimal and their service is restricted to few well off individuals and companies
In Nigeria, despite growing population and economy, insurance is still lagging seriously behind in the world global market ranking, and has only 0.5 percent insurance penetration.
In terms of peer country comparison in Africa, Nigeria with a population of about 170 million has 59 insurance companies, while South Africa with a population of about 52 million has 184 insurance companies; and Ghana with a population of about 25 million has 47 insurance companies. The insurance industry in South Africa and Ghana contributes 12.9 percent and one percent to their respective GDPs.
Compared to advanced economies, the total insurance premium as a percentage of GDP for US is 14.5 percent, UK, 15 percent, Ireland 22 percent and Germany 8.9 percent. The major constraints to the Nigerian insurance industry are poor corporate governance; high default rates; low capital; low capacity and skills; cultural factors; high level of consumer’s ignorance of the advantages of insurance products; high rate of unemployment and low GDP per capita as well as lack of genuine property ownership documents.
It is in view of the above scenario that we suggest that the plan of the Central Bank of Nigeria to prohibit Nigerian banks from engaging in any form of bancassurance should be reconsidered; because, the insurance industry in Nigeria needs to be boosted through encouragement, and bancassurance is a globally accepted practice.
The bank insurance model (BIM), also sometimes known as bancassurance, is the partnership or relationship between a bank and an insurance company whereby the insurance company uses the bank sales channel in order to sell insurance products, an arrangement in which a bank and an insurance company form a partnership so that the insurance company can sell its products to the bank’s client base. BIM allows the insurance company to maintain smaller direct sales teams as their products are sold through the bank to bank customers by bank staff and employees as well.
This partnership arrangement can be profitable for both companies. Banks can earn additional revenue by selling the insurance products, while insurance companies are able to expand their customer base without having to expand their sales forces or pay commissions to insurance agents or brokers.
Bancassurance, has proved to be an effective distribution channel in a number of countries in Europe, Latin America, and Asia; the bancassurance business has come a long way in Africa, from being relatively unknown ten years ago to being at the centre of most finance institutions’ growth strategies; it is now really beginning to take shape and is now an established and growing channel for insurance distribution, hence Nigeria should not be seen to deviate from a positive global trend.
