Financial Inclusion: Challenges, prospects of increasing access to insurance

In 2012, the Central Bank of Nigeria, CBN, launched the National Financial Inclusion Strategy with the aim of increasing the number of adults that have access to financial services to 80 per cent by 2020. To achieve this,  different targets were set for each sector of the financial system.    For the Insurance industry, the  target was  40 per cent insurance penetration amongst the adult population by the year 2020.

According to a survey released by Enhancing Financial Innovation and Access, EFInA, in 2018 titled: “Access to Financial Services in Nigeria 2018 Survey”, out of a total adult population of 99.6 million, only about 1.6 million adults representing 1.6 per cent had any form of insurance in 2018, representing 0.1 per cent decline from 1.7 million adult population in 2016.

Further research shows that only about five percent of the total adult population had any form of insurance as at the end of 2020. According to National Insurance Commission, NAICOM: “The insurance penetration in the country is still very low as only about five per cent of adult population have one form of insurance or the other.” The poor performance of the industry in attracting more adults and hence, patronage, is further reflected in a report by AM Best, a rating agency, which indicated that the industry contracted in real terms by four percentage points between 2014 and 2018.  

According to the report titled: Nigeria’s Insurance Market Offers Significant Potential despite Headwinds, the Nigeria Insurance industry generated N426 billion as gross written premium (GWP) in 2018, representing 14.5 percent growth over the previous year.

In the five years between 2014 and 2018, the compound annual growth rate of total GWP grew on average by 8.6 per cent per annum. “But that growth is not what it appears. AM Best analysts note that although growth has seemingly been strong, when viewed in real terms, the market actually contracted by approximately four percentage points due to inflation that averaged 12 per cent over the same period,” the report stated.  

According to the World Bank, financial inclusion is achieved when every member of the adult population has easy access to a broad range of formal financial services that meet their needs at affordable cost.

Financial inclusion implies not only access but usage of a full spectrum of financial services including but not limited to payments, savings, credit, insurance and pension products designed according to the need of the customers.

Unfortunately, the majority of Nigerians are living below the poverty line of below one dollar per day. Evidently, such a class of people can hardly afford insurance services and as such, remain largely uninsured against any form of disaster. Hence, when disaster strikes, they find it difficult or even impossible to find their feet again.   Speaking on the issue, former President of the Nigerian Council of Registered Insurance Brokers, Mr. Babajide Agbeja stated: “The impact of not being able to secure adequate cover can be extremely serious, particularly for those with lower incomes. Being uninsured leaves people unable to plan beyond their immediate future, protect themselves against unexpected financial hardship and enjoy the peace of mind an insurance cover can bring.

In other words, insurance products should be made affordable to every Nigerian, especially to the grassroots to mitigate against unforeseen risks and place them back to the position they were before the loss occurred.”

Also speaking, Deputy Managing Director of African Reinsurance Corporation, Mr. Ken Aghoghovbia noted that access to insurance services is critical to financial inclusion particularly at the grassroots, hence insurance being a veritable tool to bring people out of poverty, will greatly enhance the spread of financial inclusion.

Speaking at an Insurance Directors’ conference in Lagos, Director, Policy & Regulation, National Insurance Commission, NAICOM, Mr. Pius Agboola said that there is a strong positive correlation between insurance and economic development, as such, there is a need to improve insurance acceptance in Nigeria, particularly to the underserved and excluded segment of the populace.

Several reasons have been adduced for the poor insurance penetration in Nigeria.  These include:   peculiar market environment, limited public awareness and negative public perception by those who are aware of insurance. Explaining, Director, Policy & Regulation, National Insurance Commission, NAICOM, Mr. Pius Agboola said that the very low acceptance of insurance in Nigeria is largely due to ignorance on the part of the consumers and the general public. “This is further aggravated by sheer lack of special purpose machinery for the continuous enlightenment campaign to the members of the general public,” Agboola said.

On its part, A.M Best noted that obstacles to insurance market growth include low consumer awareness, lax enforcement of mandatory coverage laws and new proposed capital requirements.

The report stated: “A key factor behind the relatively slow real GWP growth has been the low insurance penetration in retail lines. Low retail penetration can be partly explained by the low level of awareness and trust in insurance, as well as the absence of strong financial literacy across large parts of the population.

“Furthermore, the extremely shallow level of economic growth in recent years has affected both the demand for insurance as well as the value of insurable assets across a number of lines of business.” Another challenge: there is also a shortage of technical expertise across some lines of business. How to grow insurance penetration Despite the various challenges confronting the insurance sector, operators argue that to boost financial inclusion through insurance, there is need to carry out sensitization and awareness on insurance business campaigns. They also stressed the need to build confidence and promote public understanding on insurance mechanisms, as well as development of insurance education across the board.

In this regard, A.M Best stated: “To help close the protection gap, insurers need the support of the government to enforce and promote the benefits of insurance. Also, there must be additional steps to enforce the uptake of mandatory coverage.

“Insurers could improve their distribution and premium collection via mobile applications to reach a greater proportion of the population. The industry needs the support of the government to improve trust and understanding of insurance if the market is to grow in the country.”

For Agboola, there is need for the implementation of financial inclusion initiatives in the insurance sector such as micro-insurance for low income earners and those given credit loans by various state governments which   will help to deepen insurance penetration in all the states of the federation.

He said: “The goal of achieving and surpassing the target of 40 per cent adult population penetration will be achieved by providing an enabling environment and framework for the excluded and low income population to participate and benefit from insurances.  

This will be done through: development of legal and regulatory frameworks on takaful and microinsurance; definition   and implementation of insurance literacy programmes; enforcement of quick settlement of claims and sanctions for infractions; as well as incentivise insurance companies to develop micro-insurance products, takaful insurance and index-based insurance products to serve low-income/rural individuals.”

Also speaking, Anike Okechukwu, Vice-Chancellor, Enugu State University said at the root of poverty lies the depriving the people access to basic necessities such as food, shelter, healthcare, education, security and assets, and to solve these issues there must be concerted efforts toward financial inclusion for all citizens.

Speaking at a conference by the Chartered Insurance Institute of Nigeria, CIIN, Okechukwu noted that financial exclusion is a burden that must be lifted, and which requires adequate financial planning through insurance. He said: “Appropriate financial services can help vulnerable households reduce risk, build resilience, smoothen consumption, safeguard savings, better manage the consequences of unforeseen events, and invest in assets and grow businesses. To achieve this, insurance remains strategic.” Okechukwu also noted that health insurance can ensure adequate healthcare for many families and reduce out-of-pocket expenditure.

“In fact, health insurance is linked to economic growth and reduction in poverty. “Nigeria is battling with a number of scary health issues including malaria, tuberculosis,   infant and maternal mortality, all of which have a sweeping impact on productivity. Insurance services can make a significant difference in the lives of vulnerable individuals by helping households mitigate shocks and improve the management of expenses related to unforeseen events such as medical emergencies and death in the family,” he said. He stated that another critical area that insurance would cover is education, noting that this could ensure that parents and guardians save enough money to ensure stability in the education of their wards. “If education insurance is taken up, the stability in providing quality education is guaranteed even in the event of the death of parents and guardians.

Housing or property insurance is fundamental in ensuring that a great majority of Nigerians have access to affordable shelter and protection against natural or man-made disasters. Effectively, if one is covered by housing insurance, it will ensure easy access to funds in any event. As you know, many families are homeless today because they are financially excluded.”

Also speaking, Managing Director of Consolidated Hallmark Insurance Plc, Mr. Eddie Efekoha said that it is common knowledge that insurance penetration is nowhere near where it should be in the country. “As practitioners, we can also acknowledge that companies are doing all that they can within the tenets of the law to reach out to customers in order to create a sustained demand for insurance products. “The question is, are our best efforts enough? What more can we do to improve our lot? Efekoha queried.

He said: “Even the smallest molecule of our operations should be clear and concise to our target audience and our messages should reach them wherever they are. Only then can we truly retain top of mind awareness and agree that we have taken a significant step in what we collectively desire to achieve, an insurance industry that is a significant contributor in terms of numbers to the economic growth.”

In essence, operators believe that the low insurance penetration means there is room for geometric growth. However, there must be improved market conduct, service delivery, value creation as well as prompt and fair claims settlement, among others, if the sector hopes to contribute significantly to financial inclusion strategy going forward.