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In 2012, Nigeria launched a National Financial Inclusion Strategy (“NFIS”) in which it aimed at reducing the percentage of adult Nigerians that are excluded from financial services from 46.3% in 2010 to 20% by 2020.
This included a financial inclusion target of 40% in insurance by the year 2020. According to Enhancing Financial Innovation & Access (EFInA), a financial sector development organisation that promotes financial inclusion in Nigeria, this 40% target translates to about 43 million people of the adult population to be covered by insurance products by 2020 (about 107 million of which are over 15 years old based on 2017 population).
By 2018, it was obvious that the set target for insurance was nowhere near achievement and changes had to be made leading to the release of the revised NFIS. Insurance, which is predetermined protection against loss, is greatly underutilised in Nigeria.
Also in 2018, a study on Nigeria’s insurance development was undertaken by Cenfri. The outcome of the study showed that insurance uptake was at 1.9% of the adult population reflecting insurance market penetration of 0.3% of Gross Domestic Product (GDP).
According to Augusto & Co’s estimates for the 2019 financial year, the insurance industry in Nigeria generated gross premium income (GPI) of N471 billion, approximately 12% higher than the preceding year’s GPI. Compared to other African countries like Kenya and South Africa with 2.9% and 14% respectively, insurance penetration in Nigeria is low. Some of the factors accounting for the slow growth include:
Regulatory barriers, weak underwriting, cultural and religious beliefs, premium leakages, Slow pace of adoption, Low enforcement of compulsory insurance, Need for improved capital buffers to increase capacity ,Need for innovation in microinsurance to deepen penetration ,Need for greater utilisation of bancassurance by players; and Need for investment in takaful insurance.
There is no doubt that a functional insurance industry enables efficient risk allocation associated with economic activities which translates to increased savings and investment, job creation and financial inclusion. Failure of traditional insurance companies to develop insurance products and business models that match evolving protection needs of consumers has also contributed to making insurance unattractive to prospective customers.
These hitches include absence of product modification, seamless and user-friendly onboarding platforms and easy and fast claim payment upon risk occurrence. The position is further exacerbated by the average Nigerian’s lack of disposable income to invest in insurance and regulatory barriers resulting in distribution limitations amongst others.
Nigeria has been identified as a country with tremendous potential for microinsurance notwithstanding the current low rate of penetration compared to other African countries.
This is a product offering that targets the low income population by offering risk cover with payment of minimal premium. There is still a whole lot that the industry’s multiple regulators can do to improve the microfinance landscape.
Notwithstanding the challenges however, how can InsurTech maximise the potential of this untapped market? InsurTech as an aspect of FinTech is the use of data and technology innovations to improve customer experience, simplify policy management and increase competition in the insurance sector.
Artificial intelligence (AI), blockchain technology and machine learning have been used to revolutionise the insurance landscape and can be used effectively in Nigeria to engender microfinance penetration. Some of the solutions we have seen include creation of smart contracts, operational efficiency, fraud prevention and tailored product pricing.
For instance, Nigerian startup Curacel helps to support rapid claims management and accurate payouts by eliminating payouts for fraudulent, wasteful or abusive claims through the power of intelligent software. Helium Health is also providing a similar offering through its Helium Cover, a product which seeks to reduce fraud and simplify the health insurance claims process.
The application of InsurTech should address the current realities of lengthy and inflexible underwriting process, manual actuarial process for retrieving, transforming and processing data which increases the time and the cost of the actuarial process, slow payments and collections system which leads to discrepancies and delays in reconciliation, and a claims process involving extensive paperwork and lacking information transparency and status tracking. The enhanced data and digital capabilities should help harness savings from efficiency gains and boost consumer confidence.
There is an identified reduction of insurance products available for the low-income Nigerian markets which InsurTech startups can address. A good place to start would be to identify the financial and economic activities of the low-income households which would benefit from increased microinsurance penetration. The low hanging fruits products would be health, life, accident, micro businesses, and agriculture.
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