Expert point’s way forward for insurance penetration

To increase insurance penetration in Nigeria, government must demonstrate genuine interest in supporting development of the sector.

According to expert, government actions should go beyond regulatory efforts but should extend to providing structural and institutional framework required for insurance to strive in the economy.

Government should partner with insurance companies, insurance institutions and other stakeholders to promote the development of insurance, says Chike Mokwunye, immediate past group managing director, Royal Exchange plc.

He said if we discount the efforts of the primary regulator (NAICOM), we are faced with a situation where it may be safe to say that government policies, actions or inactions have not been favourable to the insurance sector.

“Over the years, the government at all levels has failed to respect insurance laws especially in insuring their assets, while most state governments and other government agencies are yet to comply with the provisions of the law on the insurance of assets, group life, and health.

Government therefore presents a poor example to the public on the need for insurance.”

“I am of the strong opinion that the enforcement of the compulsory insurances introduced by the MDRI should be the responsibility of government. Insurance Act 2003 and all the related amendments are laws of the land and should be enforced by the government.”

He further stated that the failure of government to enforce the provisions of the act as it relates to compulsory insurances has contributed immensely to the non-achievement of the envisaged goals of increased insurance penetration.

“While the government in handling the economic crisis associated with the stock market crash between 2008 and 2010 provided bailout plans for the banking sector and the stockbrokers, no effort was made at ameliorating the impact of the crisis on the insurance sector.” This was quite unfortunate, considering the fact that insurance companies traditionally were the largest institutional investors.

The history of insurance in Nigeria dates back to 1918 when Royal Exchange Assurance, London established an insurance desk in the then Barclays Bank DCO as an agency. In 1921, the company established a full branch in Nigeria; which metamorphosed into the Royal Exchange Plc of today. Royal Exchange Assurance was established to cater for the needs of British colonial companies like United African Company (UAC), Lever Brothers, John Holt etc, their foreign staff and the colonial civil servants. Unlike most European economies where insurance evolved from the efforts of the working class, in Nigeria, modern insurance was introduced to cater for the risk management needs of the elite. The evolution of the industry in the last 94 years from Agency business to companies owned by foreigners; and later the indigenization of these companies and the establishment of indigenously owned companies did not however change the business paradigm – concentration on the elitist market of high-net-worth individuals and corporate clients. The only noticeable change was the addition of public-sector businesses – this remained the bane of the industry.

The industry regulator, National Insurance Commission (NAICOM), in its effort to improve the growth in gross premium, insurance penetration as well as raise confidence in the industry introduced the Market Development and Restructuring Initiative (MDRI). This initiative has only achieved fleeting result.

In Nigeria, households, businesses – especially the small and medium scale enterprises and the informal sector – demonstrate low level of financial literacy. They often lack sufficient awareness of the risks to which they are exposed, the ability to correctly assess these risks and the knowledge of insurance products that are designed to mitigate the insurable risks.