Some 18 million uninsured adult Nigerians have indicated interest in microinsurance products, according to the result from EFInA’s 2020 survey on Access to Financial Services in Nigeria released on Thursday.
This opens a huge opportunity for insurers in the country who are struggling to grow their customer base.
Currently, nine out of 10 Nigerians do not have any insurance subscription. Top among reasons for this are lack of tailor-made insurance products and low disposable income on account of the sluggish economic growth that has remained fragile since 2015.
The unwillingness by many Nigerians to take up insurance products has kept the insurance penetration rate in Africa’s largest economy at less than 1 percent in the last decade.
“The truth is that most insurance products that we have currently do not address the needs that we have in Nigeria,” said Ayokunle Olubunmi, head, Financial Institutions, Agusto & Co.
As the country is evolving, Olubunmi believes “there is a need” for insurance companies “to adjust products to meet demand”.
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Going by EFInA’s data that put Nigeria’s adult population at 106 million (18 years and above), 103 million are outside the insurance scheme as only 2 percent or 2 million adults were insured as of 2020.
“Only 2 percent of Nigerian adults are insured, but 18 million uninsured adults say they would be interested in microinsurance,” Ashley Immanuel, CEO of EFInA, said.
Insurance as a percentage of the adult population that is covered by a regulated insurance policy in Nigeria has remained stagnant at 2 percent since 2016 when it moved from the 1 percent reported in 2014, as analyzed from the data by EFInA.
Out of the 40 percent insurance inclusion target set by the Central Bank of Nigeria (CBN) for 2020, only 2 percent was achieved as the target fell short by 38 percent.
Explaining why many Nigerians don’t consider an insurance cover as a priority, Jim Ovia, founder/chairman of Zenith Bank Plc, said in a statement that the major problem “we see in the Nigerian market is that per capita income of the people is very low and people tend not to take insurance as a priority against other things related to them”.
That explains why the 18 million Nigerian adults who told EFInA of their interest to take up insurance said they wanted micro products.
The high cost of living in Nigeria which is not matched by the country’s per capita income as the fragile economic growth has remained lower than the population growth rate since 2015 means that more Nigerians are becoming poorer, the reason why the country’s ‘sachet economy’ has continued to expand.
Increasingly more Nigerians are only able to buy less of their usual consumption basket as a result of shrinking purchasing power.
With the unemployment rate at a record high of 33.3 percent in the fourth quarter of 2020, and a population growth rate at an average of 3 percent per annum, Nigeria’s 2021 first-quarter GDP growth by a paltry 0.51 percent is anything but undesirable.
Inflation rate which measures the rate at which the prices of goods and service increase in Nigeria eased to18.12 percent in April down slightly from a four year high of 18.17 percent in March.
Before Covid-19, about 80 million of Nigeria’s 200m people lived on less than the equivalent of $1.90 a day. The pandemic and population growth could see that figure rise to almost 100m by 2023, says the World Bank.
While the impact of COVID-19 is easily blamed for the recent economic woes in Nigeria, an evaluation of the country’s macro-economic indicators before the pandemic shows Nigeria was grappling with low growth before the pandemic triggered a recession and created large financing gaps, including dollar shortages and inflation.
Economic growth in Africa’s most populous nation averaged 1.2 percent between 2015 and 2020. The problem with that is the population grew two times faster at an average of 2.6 percent per year.
Despite the low opportunity for many Nigerians to improve their income level, insurance, according to analysts is an important financial services product that should be in their consumption basket as it could help to mitigate losses, increase financial stability and promote trade and commerce activities that can result in sustainable economic growth and development.
Access to basic financial services like a savings account, credit and insurance means that a country is financially included. Nigeria recorded 64.1 percent financial inclusion rate in 2020, meaning 35.9 percent or 38.1 million adults, an increase from the 36.6 million in 2018 were excluded in 2020. A higher exclusion rate in Nigeria could lead to a poorer population as lack of access to credit and insurance puts them at an economic disadvantage.
According to analysts, the challenge of insurance companies to deliver on the funds they will raise to meet the required capital base will birth innovative products that will consequently help to deepen Nigeria’s less than 1 percent insurance penetration rate.
The National Insurance Commission (NAICOM) said it has been working to increase the capital base of insurance companies in the past few years to enable industry players to take on more risk and create innovative products.
Even though NAICOM has suspended the recapitalisation exercise for insurers and reinsurers, following a court order issued 10 days before the deadline of the first tranche of the exercise which was to take effect on 31 December, 2020 analysts believe raising the capital base of the industry players will be a catalyst to deepening Nigeria’s insurance penetration rate that has not recorded significant improvement in the last decade.
