Expert sees micro insurance riding on existing windows pending stability in economy
Pending when the economy returns to stability, micro insurance may still run on existing windows, analysts have said. They also believe that with current economic recession eating up income of individual and householders, this may not be the best time to launch micro insurance only-firms.
Margaret Dawes, executive director, Sanlam Emerging Markets in an email response to BusinessDay questions said instead, conventional insurance companies can still be providing micro insurance services using existing windows.
Meanwhile, the National Insurance Commission (NAICOM) has suspended the licensing of microinsurance firms pending when it comes out with fresh guidelines.
Rasaaq Salami, head, Corporate Affairs said the initial guidelines released a few years back had to be suspended and reviewed to ensure that it captures the focus of the initiative, which is to deepen penetration.
Salami said a new guideline is being formulated so that firms can be licensed by the size of market and location they want to cover, which will also determine their level of capital. We want to have those for local government, regions, states and all that, he said.
Dawes who agreed that the potential of the insurance sector in Nigeria is huge given the population, as well as number of informal sector workers said micro products will drive growth.
“The potential must be huge given the size of the population and the number of people who work in the informal market”.
But considering the current economic challenges facing the country and potential for establishing a micro insurance firm, Dawes said “I’m not sure it is the right time to launch a microinsurance firm, but the existing insurers can still launch microinsurance products.”
“Typically for microinsurance to be financially viable for the insurer they will need to have reasonable certainty of very high volumes as the products by their nature have very low premiums. This problem is exacerbated for a microinsurance only firm, as the cost of administration is likely to be a significant portion of the overall cost.”
According to her, insurance admin platforms are usually quite expensive and could act as a barrier to entry.
“The existing insurers already have administration platforms which make it more viable for them to launch microinsurance products.”
On take up of insurance at this time of economic recession, Dawes also said it is based on personal needs and the type of insurance protection they are looking for.
“If people can’t eat they certainly won’t be thinking about insurance and won’t be able to afford it either. There is a minimum income level, below which a person is generally not considered a candidate for any insurance. This would vary by country, but could range from $5 – 10 per day as the minimum.
Microinsurance products will target people with lower disposable income, but not zero disposable income, she noted.
Low insurance awareness and inaccessibility to insurance services especially by the low income earners and the poor has over the time been identified as one of the major factors responsible for Nigeria’s low insurance rate.
Micro insurance entails the development of insurance products to cater for the micro businesses, individuals with a very modest or below-average lifestyle, and individuals with personal effects that are not so valuable. Simply, it is insurance that focuses on the needs and assets of the poor. The group of people who do not belong to those normally regarded as “high net-worth individuals”.
Micro-insurance can cover a variety of different risks, including illness, accidental injuries, livestock, death and property loss – any risk that is insurable as long as the product is affordable and accessible for low-income households.
Modestus Anaesoronye,