Insurers seek government policy on credit culture to increase penetration

To increase insurance penetration and drive economic activities amongst Nigerians, insurers have called on government to come up with policies that will encourage credit culture.

Credit culture, they believe have the capacity to boost economic activities particularly amongst small and medium small scale businesses by enabling them have better access to loans that backed by insurance.

The implication is that both the lender and the borrower are adequately protected with credit insurance, and this will drive uptake for insurance, improve credit culture and better confidence in the business environment.

Credit insurance is the insurance that you can purchase when you take out a loan that protects both you and the lender in the event that you are unable to pay the loan due to death, disability or unemployment. Credit insurance is always sold in connection with a specific loan. The cost of the insurance (if any), is generally built into the loan payment.

Analysts who spoke to BusinesDay last night said in the current economic headwinds which has affected business and economic activities, an increased access to loan would help businesses cope with shortage of fund in the economy, help business expansion and bring stability.

Sunday Thomas, director general, Nigerian Insurers Association(NIA) said as an industry we urge the government to come up with policies that will promote credit culture.

“These kinds of policies when established and implemented are known to have promoted insurance culture in many jurisdictions”.

Credit culture which can drive insurance culture must be promoted by the government for there to be an inclusive growth, Thomas said.

According to the African Insurance Barometer 2016, produced by Dr. Schanz, Alms & Company for the African Insurance Organisation, credit life insurance ranks first among the most profitable lines of business.

The report stated that as many loan agreements require credit life insurance to protect lenders, the product is in high demand, not only in the microinsurance arena.

According to the report also, claims ratios are typically very low, making the product very profitable for life insurance.

Analysts say that although you can obtain credit insurance as an individual, in most cases, a group policy is sold to a lender such as a bank, finance company, credit union or a vendor such as an auto dealer or a furniture store.

“When you borrow from a lender that has a group policy, the lender may offer the credit insurance as an additional service. If your application for insurance is approved, you will be given a certificate of insurance, which describes your coverage and serves as proof of insurance. You should receive a certificate within 30 days after you apply for insurance.”

Insurance penetration in Nigeria is less than one percent and precisely about 0.45 percent, and this has largely been attributed to lack of credit culture amongst Nigerians. And this analyst believe would be greatly enhanced if credit products are enhanced.

Credit insurance is available on just about all types of personal loans including both closed-end and open-end loans. A closed-end loan is a loan for a specified amount and for a fixed term. Most closed-end loans in the credit setting are installment loans, which mean that the loan is repayable in equal monthly payments. An open-end loan is a loan where you can increase the amount of the loan at any time and the term of the loan is not fixed. The most common example of an open-end loan is a credit card.

Examples of loans that you can obtain credit insurance for include, among other things, loans to cover the purchase of appliances, motor vehicles and farm equipment, as well as educational, credit card, home equity and mortgage loans.

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