Industry collaborations key to reducing insurance gap in Nigeria
The number of uninsured population against the total population in Nigeria underscores the huge insurance gap in Nigeria.
The implication is that many have not been able to benefit from the benefits of insurance, in terms of providing them with the necessary protection to explore new business opportunities or provide support for families and groups to attain economic stability and growth.
With insurance penetration in Nigeria, still less than one percent despite the country’s population over 180 million, underscores the huge untapped potential and why many foreign investors including those from Europe and America are seeking to have footing in the local market.
The National Insurance Commission (NAICOM) said insurance industry needs a strong collaboration towards reducing insurance especially in the areas of natural catastrophes; Cyber crimes/risks; healthcare; pensions and emerging risks. Pius Agboola, director inspectorate, NAICOM, who said this at the Risk Frontiers West Africa 2018 in Lagos, identified some areas where there are still gaps to be filed by insurers. These areas, according to him, include natural catastrophes; Cyber crimes/risks; healthcare; pensions and emerging risks.
He said that the NAICOM has taken steps to bridge these gaps through the introduction of microinsurance; Takaful insurance licenses; Bancassurance partnership with conventional banks while with microfinance banks is in progress; partnership with relevant agencies and state governments on compulsory insurances implementation is in progress.
Other steps, according to him, are distribution channels which are being expanded; coordination with relevant government agencies for effective insurance of government assets and partnership with relevant government agency (NIRSAL) on agriculture index insurance.
He said the commission has engendered partnership with the operators on awareness creation through the medium of Insurers’ Committee; partnered foreign development agencies for sponsorship and reinforced its zonal/branch offices on insurance education at their domain.
Agboola stated that the regulator is also encouraging specialization; strengthening insurer’s capacity; improving insurance penetration; attracting foreign investment and encouraging healthy competitions.
Lloyd’s of London said in a release recently that in order to close the insurance protection gap the that capital market investment, channeled through insurance-linked instruments, is going to be a key tool to help achieve this. Lloyd’s notes that efforts to close the disaster protection gap are not going well, with an estimated $163 billion of assets left underinsured in the world today and this gap having only closed by less than 3 percent in the last six years.
You’d think that Lloyd’s would be extolling the virtues of its marketplace and traditional insurance and reinsurance syndicates, as the mechanism for closing these gaps.
But actually, even the world’s oldest insurance market is aware that without the support of the capital market the task of narrowing this gap is going to be incredibly slow and that borrowing concepts from financial market structures and insurance-linked securities (ILS) is likely to have greater effect in a shorter period of time.
Insurance penetration rates remain significantly higher in developed nations compared to in emerging economies, but the insurance industry on its own is not making the headway required to meaningfully close this gap, it appears.
As a result, research from Lloyd’s, alongside the Centre for Global Disaster Protection, Risk Management Solutions (RMS) and Vivid Economics, lays out some details on four financial instruments that the group say could be used to incentivize investment in resilience.
All four are more akin to capital markets tools than insurance or reinsurance, borrowing heavily from some of the concepts developed in the insurance-linked securities (ILS) and development finance markets.
The instruments the report describes are: insurance-linked loans (infrastructure loans with an insurance component; resilience impact bonds (a type of impact or social bond, but specifically for resilience); resilience bonds (the catastrophe bond like resilience bond concept that has been broadly discussed for the last few years); and resilience service company (ReSCos) (a funding mechanism that would be linked with insurance).
While all four are insurance-linked, none of these would really require a traditional insurer or reinsurer to be able to get them off the ground and in fact may even be more efficiently delivered as pure capital market instruments.
Lloyd’s did of course also explain the important role that risk financing can play, by providing liquidity immediately after a disaster strikes, protecting government capital and buffering taxpayers from the loss.
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