Deepening insurance penetration

Insurance penetration in Nigeria, Africa’s largest economy by GDP, is abysmally low at less than 1 percent. A major challenge for the industry in the country has been product distribution and how to deepen penetration to the uninsured populace.

So far, there appears to be only one well-developed distribution channel, the broker channel, which is said to control about 70 percent of total premium generation in the market. And insurance firms and regulators in the country over time seem to have focused on this channel, to the detriment of the overall insurance industry. The retail segment of the market has been left largely untapped.

As at the end of 2012, only 1.3 million Nigerians, out of a population size of over 170 million, had taken up any form of individual insurance – that is, life, property, and even compulsory insurance like motor – according to a report by EFInA.

But industry experts say other distribution channels, such as agency networking, mobile telephony, financial institutions channels, etc, if fully explored and developed, can go a long way in deepening insurance penetration.

A few insurance companies have made an effort to create agency distribution channels, but most of them still tend to shy away from this due to the huge set-up and operating cost. Similarly, bancassurance, the sale of insurance products through banking channels, saw a few insurance companies and banks going into partnership for the distribution of insurance products. This channel was beginning to help deepen insurance penetration due to the large distribution outlets that these Nigerian banks have, with some estimates saying it accounted for about N13 billion of insurance premium annually (about 5 percent of total insurance industry revenues), until a new CBN regulation put a stop to it.

The electronic channel, seen as a very good innovation that can help deepen insurance penetration due to the convenience associated with distribution, is just picking up, with a handful of insurance companies selling insurance products through telecommunication platforms, e-commerce websites and the websites of insurance companies.

We agree with stakeholders at the recently-concluded African Insurance Organisation conference in Kigali, Rwanda, that “in order to harness the huge potential of its largely untapped informal economic sector…the African insurance industry should leverage on technology, especially telecommunications and mobile telephony in promoting financial inclusions”.

We also believe, alongside industry analysts, that for insurance in Nigeria to make major progress in income and density, technology and telecommunication must play a vital role, particularly in product distribution and accessibility.

But we also believe that this would be workable only if the insurance firms make their products and services accessible and affordable for the people in rural areas.

As such, we commend firms like Cornerstone Insurance plc, which has undertaken underwriting of life and hospitalisation risks of Airtel customers; FBN Assurance Limited, which partnered with Etisalat, and Mansard Insurance plc, which partnered with MTN for telephony insurance policies. These efforts, reports say, have so far seen the nation witnessing penetration policy sales of over 100,000 on month-by-month basis.

We believe that insurance companies, like banks, are nation builders. They help deepen financial inclusion and act as financial intermediaries through which funds are aggregated to provide long-term funding for the development of infrastructure in every economy. As such, we urge all stakeholders to do everything legally possible to deepen insurance penetration in the country. Otherwise the contribution of the insurance sector to the economy will remain abysmal as the sector suffers from very weak distribution.