From Diagnostic to Action: Developing Microinsurance in Nigeria

Considering  Nigeria’s socio-economic particularities and that only about 1% of the adult population has insurance coverage, Nigeria’s development plan, “Vision 2020,” describes the country’s insurance sector as a huge and untapped opportunity.

Against this context, the National Insurance Commission (NAICOM), the regulatory body for insurance in Nigeria, approached the Access to Insurance Initiative, the partnership Making Finance Work for Africa (MFW4A) and GIZ to carry out a Microinsurance Country Diagnostic. The goal of the diagnostic process was to analyze the market, distill key opportunities and drivers and identify potential barriers and constraints for the development of a viable microinsurance market. The diagnostic is comprehensive and covers:

• country-specific context factors, including political, macro and socioeconomic characteristics, as well as the country’s status quo on overall financial inclusion issues;
• demand-side drivers, explored through focus group discussions;
• supply-side drivers, including an analysis of different types of insurance providers, available products and their characteristics, and current and potential distribution channels; and
• an in-depth look at the impact that the current policy and regulatory environment (including all relevant regulation, not just insurance regulation) has on microinsurance development.

A woman stands in a stall selling red peppers

Photo Credit:  Anjali Banthia

Importantly, the diagnostic approach focuses on catalyzing a local stakeholder process, bringing together all actors involved in the sector to discuss, prioritize, adopt, and implement strategies to support the development of insurance services for poor and low income people. While such a consultative approach has the advantage of assuring buy-in by the key actors and their commitment and readiness to implement changes right from the start, it also takes more time and continued interaction than a strict market analysis.

The Results of the Diagnostic in Nigeria

The diagnostic uncovered that key stakeholders in the insurance market generally perceived the low penetration of insurance coupled with the large and growing Nigerian population as a huge opportunity. Yet, knowledge about formal insurance among low-income people is generally weak, and especially in the rural areas, many have not even heard of the concept. As in many other countries, people who had interacted with insurance companies often had negative experiences and thus no longer trust them or do not recognize the value insurance can deliver. But focus group participants recognized the many risks they face, with their own or a family member’s illness or death, as well as accidents and fire being their main concerns.

Based on these findings, the diagnostic suggests that the top priority for creating an inclusive insurance sector in Nigeria is to improve public confidence, trust and awareness. Doing this requires investing in capacity building, innovative and cost-effective delivery channels, and alliances with partners that are close to poor and low income people. In a later stage, the diagnostic recommends awareness raising campaigns throughout the country; however, with a view of making sure relevant and high quality products are available for the target population.

For the supply side to develop to its full potential while assuring that (potential) clients are protected, an enabling regulatory framework is essential. The recent Landscape of Microinsurance in Africa 2012 study found that microinsurance-specific regulation does not seem to have pushed microinsurance development in Africa. However, the lack of it appears to have created uncertainty and hindered growth and expansion. An enabling policy and regulatory environment is essential to enable first movers to serve as catalysts, proving the viability and sustainability of the microinsurance business in Nigeria.

The analysis of the Nigerian regulatory framework recommended the creation of a dedicated microinsurance framework covering, and allowing for, a variety of organizations to offer microinsurance (e.g. traditional insurance companies as well as dedicated microinsurers). Such a regime requires strict but proportionate entry and on-going requirements, such as a lower minimum capital balanced by a limited scope of permitted activities, and an effective but highly efficient licensing and supervision process. This suggested approach for Nigeria is in line with the recommendations set forth in the Application Paper on Regulation and Supervision Supporting Inclusive Insurance Markets developed by the Microinsurance Network and the IAIS’s Joint Working Group on Regulation, Supervision, and Policy.

In late 2012, over 100 actors involved in the insurance sector in Nigeria joined a stakeholder workshop to discuss these and other issues emerging from the diagnostic. Following NAICOM’s adoption of the report as a working document for Nigeria, a steering committee comprised of all relevant stakeholders is planned to be set up with the mandate to design and implement an action plan.

Since then, NAICOM revised the Microinsurance Draft Guidelines which are about to be finalized and implemented. At the same time, guidelines around the payment of claims are being developed. In order to ensure adequate understanding and increase capacity among stakeholders, a series of workshops and seminars for stakeholders in the insurance industry have also been conducted. No single measure will bridge the insurance gap. Widening the reach of insurance services requires actions across many fronts, including the firm commitment of all stakeholders to build and implement a realistic plan of action. Besides NAICOM as a key actor, commercial insurers and development partners have important roles in this process.

If the three dimensions – supply, demand and policy/regulation/supervision – move toward a common objective, Nigeria will have made great strides toward providing basic and quality insurance to majority large share of its population.

--- The author is an advisor in Financial Systems Development at the GIZ.