From left: Chairman, Education committee CIIN, Mr Segun Omosehin; Director General, CIIN, Mr. Richard Borokini; Deputy President, CIIN, Sir, Muftau Oyegunle; Vice Chancellor, ESUT, Prof. Luke Okechukwu Anike; Treasurer, CIIN, Mr. Edwin Igbiti and Mr. Sunny Adeda at the 2019 edition of the CIIN Annual Education Seminar held in Enugu recently.
FINANCIAL INCLUSION IN NIGERIA THROUGH INSURANCE: CHALLENGES AND PROSPECTS
Being a Position Paper Delivered by
Professor Anike Okechukwu Luke on the Occasion of the Chartered Insurance Institute of Nigeria 2019 Education Seminar held on Thursday 7th November 2019 in Enugu
Protocol
Critical Background
We meet at a very critical time in our national life. A period characterized by dwindling economic fortunes and rising poverty in many families. Statistics from several global bodies, including World Bank indicate that Nigeria is the poverty capital of the world. About 90 million people – roughly half Nigeria’s population – live in extreme poverty, according to estimates from the World Data Lab’s Poverty Clock (2019).
In June 2018, Nigeria overtook India, a country with seven times its population, in the race towards poverty. Put differently, if poor Nigerians were to become a country, it would be more populous than Germany, Turkey, United Kingdom, France, South Africa, Spain, Argentina, Afghanistan, Poland. A 2018 World Review published by World Bank showed that unlike other regions of the world, the total number of extremely poor people in Sub-Saharan Africa is increasing, from 278 million in 1990 to 493 million in 2018. In 2015, Sub-Saharan Africa was home to 27 of the world’s 28 poorest countries and had more extremely poor people than in the rest of the world combined. While the average poverty rate for other regions was below 13% as of 2015, it stood at about 41% in Sub-Saharan Africa.
Although extreme poverty statistics have always been controversial because of how it is measured, the fact remains that more people are sliding into poverty in Nigeria and sub-Saharan Africa than any country or region of the world.
Make no mistakes, no matter what the arguments are, at the root of poverty lies the deprivation of people’s access to basic necessities such as food, shelter healthcare, education, security and assets. Economists and development experts insist that solving these issues will generally lift populations out of extreme poverty.
However, to ensure access to food, shelter, healthcare, education, security and assets, there must be concerted effort toward financial inclusion for all citizens. Financial exclusion is a burden that must be lifted. It is difficult to achieve financial inclusion, but adequate financial planning through insurance could be the answer.
Definitions
Expectedly, if financial inclusion is the answer to lifting people from extreme poverty, there is need to clearly understand the concept. According to Kama and Adigun (2013), financial inclusion is achieved when all adult citizens have easy access to a broad range of formal financial services that meet their needs at affordable costs, payments, savings, credit, insurance, pension and capital market products. Meera, Kaleeswaran, and Siddique, (2016) see financial inclusion as universal access to a wide range of financial services at a reasonable cost. It could also be a state in which all people have access to banking and insurance services as well as financial literacy and capabilities. These include not only banking products but also other financial services such as insurance and equity products. Therefore, financial inclusion is a deliberate strategy to ensuring that every adult has easy access to a wide range of financial services.
As we all know, insurance involves a contractual arrangement where individuals or entities are protected against losses and are helped to maintain financial stability. Insurance is critical in every country because it reduces the burden of risk associated with everyday life.
Financial Inclusion through Insurance
The strategic importance of financial inclusion as a catalyst for economic growth and development has been well documented. Several countries in the world, including Nigeria, understand that robust financial inclusion strategy is key. This explains why it is today widely considered as thee right of all citizens to social inclusion, better quality of life and a tool for strengthening the economic capacity and capabilities of the poor in a nation (Banco Central do Brazil, 2010). Therefore, it is a basic access for all citizens, highlighting its non-excludability and also its non-rivalness.
Appropriate financial services can help vulnerable households reduce risk, build resilience, smoothen consumption, safeguard savings, better manage the consequences of unforeseen events, and invest in assets and grow businesses. To achieve these, insurance remains strategic.
Insurance, according to Dixon, (2014) provides a critical tool for not only reducing poverty but also for helping those who have emerged from poverty to manage their risk and avoid sliding back into poverty. The financial uncertainties that provoke poverty could be better managed through insurance. In fact, with technological advancements over the past few years, there is significant improvement in the design, selling, and servicing of insurance products all over the world. Certainly, these changes can provide opportunities to weak, low income groups, marginalized individuals and families to achieve financial inclusion. (Dixon, 2014).
Let us at this point look at some critical ways through which insurance could ensure financial inclusion.
i. Health:
Increased health insurance can ensure adequate healthcare for many families and reduce out-of-pocket expenditure. In fact, health insurance is linked to economic growth, and reduction in poverty. Nigeria is battling with a number of scaring health issues including malaria, tuberculosis and infant and maternal mortality, all of which have a sweeping impact on productivity. In addition, insurance services can make a significant difference in the lives of vulnerable individuals by helping households mitigate shocks and improve the management of expenses related to unforeseen events such as medical emergencies and a death in the family (UPU,2016).
Unfortunately health insurance appears to be a difficult product to market. The former Minister of Health, Prof. Isaac Adewole, in 2018 stated that 95 per cent of the Nigeria’s 190 million people are not enrolled in any health insurance plan, despite availability of National Health Insurance Scheme.
ii. Education
Another critical area that insurance could cover is education. Insurance could ensure that parents and guardians save up enough money to ensure stability in the education of their wards. If education insurance is taken up, the stability in providing quality education is guaranteed even in the event of the death of parents and guardians. Data from CBN, 2018 indicate that less than 1 percent of Nigerians have access to education insurance despite repeated campaigns. For instance, AIICO Insurance Plc and other platforms offer several education policies to meet these needs. But the obvious question is, how many Nigerians have taken up cover? I think you know the answer.
iii. Shelter
Housing or property insurance is fundamental in ensuring that a great majority of Nigerians have access to affordable shelter and protection against natural or man-made disasters. Effectively, if one is covered by housing insurance, it will ensure easy access to funds in any event. As you know, many families are homeless today because they are financially excluded.
While I know that the list of areas insurance can cover is in exhaustive, I make bold to say that the three mentioned above, including food security, are the basic needs of man.
Challenges
The major aim of this year’s event by the Chartered Insurance Institute is not to reel out the challenges facing us but to think of better ways to deal with them. However let’s briefly examine the challenges of achieving financial inclusion through insurance.
First, I will like you to understand that the global financial inclusion average defined as the number of adults with access to financial services is less than 50 per cent. The problem is more serious in the sub- Saharan Africa, making it difficult for higher financial inclusion. Some of the reasons responsible include but not limited to:
1. Financial Exclusion
The number of those financially excluded in Nigeria is over 50 percent of the 99 million adult population. EFInA 2018 survey shows that only 37.9 percent of adults in Nigeria are operating one or more accounts financial institutions. Therefore, the number of banked individuals is very low. With this figure, the number of those who should access insurance of any kind is drastically reduced.
2. The Rural-urban Gap
One of the major reasons for financial exclusion is the number of rural population that do not have access to financial services. Ensuring that the poor rural dwellers are carried along considering the lack of financial sophistication among this segment of the population due to the general low level of financial literacy is a big challenge. Majority of the estimated 40 million financially excluded Nigerians lack knowledge of the services and benefits derivable from accessing financial services.
3. Dwindling Income
Another major challenge, is the inability of the populace to save as a result of double digit inflation in the economy. Most families in Nigeria don’t have enough to take care of their basic needs let alone save or engage in insurance. Although Nigeria is out of recession, the growth rate is very low. This has affected employment and several sources of income. EFInA 2018 survey indicates that only 1.7 percent of Nigerians are into insurance.
4. Low Awareness
Business Day Newspaper of Nigeria in April 2019 reported that insurance products are the hardest things to sell in the Nigerian market place. Poor awareness accounts for this. The extent and frequency of media campaign on insurance is very poor. Most Nigerians have limited knowledge level on the need to take up an insurance cover. This has no doubt affected their perception of insurance.
5. Weak Government Policy.
Several policies initiated by the Central Bank of Nigeria in the past to ensure financial inclusion are weak and unstable. Government at all levels must take a critical look at these policies and redesign them for acceptability.
Recommendations
I will start my recommendation by telling the Nigerian government to take a cue from the Pradhan Mantri Jan-DhanYojana (PMJDY), a people’s welfare scheme, launched by Prime Minister Narendra Modi of India in 2014. This policy has a tremendous impact on India’s stride in achieving financial inclusion over the last five years and has been extremely effective in bringing the socially excluded into the preview of the banking system. If a similar policy could be initiated in Nigeria, it will increase access to financial services.
The current Presidential Youth Empowerment Scheme by the federal government should be sustained and improved upon. No doubts, it has lifted few individual out of poverty.
Aggressive media campaigns should be launched to educate Nigerians on the importance of insurance. Such campaigns will enrich the knowledge level of both rural and urban populace on the need for insurance.
Again, effort must be put in place to create jobs for the teeming youth. More jobs, no doubt, will increase financial access. This is because reduction in formal employment will lead to reduced in disposable income and savings. This will ultimately affect insurance.
On the final analysis, let us all embrace insurance, as that is the key to sustainable financial inclusion. There is no future without insurance.
Thank you all as I wish you a robust interactive session in this year’s education seminar.
