There is a saying that almost anything can be sold in Nigeria. This, however, may not be the case for insurance products, as they are said to be one of the hardest to sell in Africa’s largest economy.
Lack of tailor-made insurance products and disposable income on account of the sluggish economic growth are top reasons why nine out of 10 Nigerians do not have any insurance subscription.
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 the country’s less than 1 percent insurance penetration rate, according to financial analysts.
“At the end of this recapitalisation exercise, the question would not be where I can get funds rather it would be, how can I deliver return on the capital that I have raised,” Ayokunle Olubunmi, head, financial institutions, Agusto & Co. said in a recent virtual media interaction.
To deliver returns on the capital raised, Olubunmi said insurance players would have to “develop strategies on how to increase insurance penetration” and thus, “get more people” to “their service net”.
To achieve this, industry analysts recommend the use of micro-insurance products, an initiative that paved way for South Africa’s 15 percent insurance penetration rate.
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An inclusive disturbing product is another area cited by a Lagos- based analyst. “Nigeria is not only Lagos and Abuja; we also need to figure a way out to get to those rural areas and that is one of the reasons NAICOM is pushing micro-insurance,” he said.
According to the National Insurance Commission (NAICOM), it has been working to increase the capital base of insurance companies in the past few years, including proposing a risk-based capital system in 2018 instead of the base capital system.
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 December 13, 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 any significant improvement in the last decades.
The recently suspended recapitalisation exercise by NAICOM started in May 2019 and it requires life insurers to meet a minimum paid-up capital of N8 billion ($20.2m), from N2 billion, while general insurance companies are required to raise their minimum paid-up capital to N10 billion from N3 billion.
“The truth is that most insurance products that we have currently do not address the needs that we have in Nigeria. As the country is evolving there is a need to adjust products to meet demand,” Olubunmi said.
The abysmally low insurance penetration rate in Nigeria, according to analysts, is mainly due to a lack of consumer trust, confidence in insurance companies, and limited knowledge of insurance amongst the insuring public leading to negative perceptions.
