Insurance Penetration As A Catalyst For Poverty Eradication, Keynote paper by Head, Energy and Special Risk, International Energy Insurance Kolade Awosanmi at the 2024 National Conference, Annual General Meeting, Election of Association of Registered Insurance Agents of Nigeria (ARIAN) in Lagos,
Good day to you all, Distinguished Guests, Ladies and Gentlemen!
Permit me to stand on established protocols!
But I must appreciate the organizers of this event, the Association of Registered Insurance Agents of Nigeria (ARIAN), for this opportunity to contribute to a very topical discuss of utmost importance in our present-day Nigeria. It is a time when we need to protect, in form of Insurance, lives & property of value to us – A that effort must be open, available and affordable to all!
Thank you, ARIAN!
This also happens to be my constituency as a registered Member of the Association!
It is indeed an honor to stand before you today to discuss a topic of utmost importance for our nation’s development, especially at this time! Insurance Penetration as a Catalyst for Poverty Eradication; permit me to domesticate it and add, in Nigeria.
Insurance, often perceived as a complex financial instrument, is in fact, a simple, yet powerful tool that can drive social and economic transformation, particularly in countries like ours where poverty remains a significant challenge.
1. Introduction
– Definition of Insurance Penetration
– Overview of Poverty in Nigeria
– The Relationship Between Insurance and Poverty Alleviation
2. Current State of Insurance in Nigeria
– Overview of Insurance Penetration Rates
– Challenges Facing the Insurance Sector
– Cultural Perception and Awareness of Insurance
3. The Role of Insurance in Economic Stability
– Insurance as a Safety Net for Individuals and Businesses
– Contribution to Economic Growth and Development
– Examples of Successful Insurance Models in Other Developing Countries
4. Insurance as a Tool for Poverty Alleviation
– Microinsurance and Its Potential in Nigeria
– The Impact of Health Insurance on Reducing Poverty
– Agricultural Insurance and Its Importance in Supporting Farmers
5. Policy Recommendations to Enhance Insurance Penetration
– Strengthening Regulatory Frameworks
– Promoting Financial Literacy and Awareness
– Leveraging Technology to Increase Accessibility
– Public-Private Partnerships and Collaboration
6. Case Studies and Real-Life Examples
– Success Stories from Other African Countries
– Potential for Replicating These Successes in Nigeria
– Lessons Learned and Best Practices
To set the stage for this conversation, let us define insurance penetration. It refers to the ratio of total insurance premiums to the Gross Domestic Product (GDP) of a country. This measure gives us insight into how widespread and influential insurance is within an economy. The higher the insurance penetration, the more robust the financial security network and the greater the economic stability for individuals and businesses alike.
In Nigeria, poverty remains a pervasive issue, with millions of our fellow citizens living below the poverty line. The causes are multifaceted, ranging from unemployment and low income to lack of access to education and healthcare. However, one factor that is often overlooked is the role that financial instruments like insurance can play in providing a safety net that prevents vulnerable populations from falling deeper and hopelessly into poverty.
Today, we will explore how increasing insurance penetration in Nigeria can serve as a powerful catalyst for poverty eradication. We will examine the current state of insurance in our country, the challenges we face and how insurance can contribute to economic stability and poverty alleviation. Finally, we will jointly propose some policy recommendations that could help unlock the full potential of insurance as a tool for social and economic development.
Current State of Insurance in Nigeria
Let us first take a look at the current state of insurance in Nigeria. Despite being Africa’s largest economy, Nigeria’s insurance penetration rate is alarmingly low, hovering around 0.5% of GDP. This is in stark contrast to other emerging markets where insurance penetration rates are significantly higher. For example, South Africa has an insurance penetration rate of approximately 14%, while India stands at around 3.7%.
Several factors contribute to the low insurance penetration in Nigeria. First and foremost, there is a general lack of awareness and understanding of insurance among the populace. Many Nigerians view insurance as an unnecessary expense rather than a crucial financial safety net. This cultural perception is compounded by the fact that trust in financial institutions is relatively low, with many people skeptical about the benefits and reliability of insurance policies.
Additionally, the insurance industry in Nigeria faces significant challenges, including inadequate regulatory frameworks, limited access to financial services and a lack of innovation in insurance products tailored to the needs of the Nigerian market. These challenges have hindered the growth of the sector and prevented insurance from becoming a mainstream financial tool for most Nigerians.
The Role of Insurance in Economic Stability
Despite these challenges, insurance has the potential to play a transformative role in Nigeria’s economy, particularly in enhancing economic stability. Insurance acts as a safety net that protects individuals and businesses from financial shocks, such as illness, accidents, natural disasters and economic downturns. By providing this protection, insurance can prevent people from falling into poverty due to unexpected events.
For businesses, insurance is essential for managing risks and ensuring continuity. When businesses are insured, they are more likely to invest in expansion and innovation, knowing that they are protected against potential losses. This, in turn, drives economic growth, creates jobs, and contributes to overall development.
In countries where insurance penetration is high, there is a clear correlation between the availability of insurance and economic stability. For instance, in South Africa, the insurance sector contributes significantly to the country’s GDP and provides a robust safety net for individuals and businesses alike. Similarly, in India, microinsurance products have been successful in reaching low-income populations, providing them with much-needed financial protection.
Insurance as a Tool for Poverty Alleviation
Now, let us delve deeper into how insurance can specifically contribute to poverty alleviation in Nigeria.
One of the most promising avenues for this is through Microinsurance — a type of insurance designed to be accessible and affordable for low-income individuals and households. Microinsurance products typically cover health, life, property and agriculture and are tailored to the specific risks faced by low-income populations.
In Nigeria, where a significant portion of the population works in the informal sector and relies on agriculture and artisanship for their livelihoods, microinsurance has the potential to provide critical financial protection. For example, agricultural insurance can help farmers mitigate the risks associated with crop failure due to adverse weather conditions. By providing compensation in the event of a loss, agricultural insurance can prevent farmers from falling into poverty and enable them to reinvest in their farms. Similarly, microinsurance would provide succor to the artisan, whose shop was burnt, to place him back in the position before the loss occurred.
I’m sure you are aware that our banking cousins are taking full advantage of the concept of micro-banking already! SMS accessible loans, no need for data, just airtime, even on a “palasa” or “tonosobe” phones – those small phones – that is accessibility! And you can get as low as #500.00! And do you know that those soft loans are also Insured? Premium deducted from the amount you are borrowing!
Now, here is the way to go. Imagine buying #500.00 insurance cover, right on your phone without any “turenchi” or grammar! And imagine, how many of the population can be brought within the Insurance net with this! Of course with an enlarged market would come the claims but isn’t that the purpose of insurance? Meeting genuine Insurance claims and helping people protect their wealth and livelihood? I believe we should be seriously looking at this in our industry to address the Insurance penetration albatross!
Similarly, Health Insurance is another powerful tool for poverty alleviation. Health-related expenses are one of the leading causes of poverty in Nigeria, as many families are forced to spend a significant portion of their income on medical bills. By providing affordable health insurance coverage, we can reduce the financial burden on families and ensure that they have access to quality healthcare when they need it. A very good example is the Ilera Eko – State Government health insurance scheme that I can testify, works, as others too!
In addition to microinsurance and health insurance, Life Insurance can also play a vital role in poverty eradication. Life insurance policies provide financial support to families in the event of the death of the primary breadwinner. This support can help families maintain their standard of living and prevent them from falling into poverty due to the loss of income.
A lot of families run into poverty once the breadwinner dies or is incapacitated, a situation that can be remedied by Insurance! Yes, it may not bring back the dead but it would certainly take care of the deceased loved ones! So, also would there be payouts in the event of incapacitation or loss of job.
Policy Recommendations to Enhance Insurance Penetration
To fully harness the potential of insurance as a catalyst for poverty eradication in Nigeria, it is essential to address the challenges that have hindered the growth of the insurance sector. I would like to propose several policy recommendations that could help enhance insurance penetration in our country.
1. Strengthening Regulatory Frameworks:
The government should work towards creating a more robust regulatory environment that fosters transparency, accountability and innovation in the insurance sector. This includes enforcing existing insurance laws and regulations, as well as introducing new policies that encourage the development of microinsurance products and other innovative insurance solutions, that would speak to the needs of people at affordable premiums.
Our regulator, National Insurance Commission (NAICOM) should be favorably disposed to and facilitate the process of new products’ approval and regulation.
Regulations must allow for innovative and radical out-of-the-box thinking, to produce those new products that would address the Insurance penetration problem by going to the root of the matter, which is accessibility and affordability!
2. Promoting Financial Literacy and Awareness:
One of the key barriers to insurance penetration in Nigeria is the lack of awareness and understanding of insurance among the general population. To address this, the government, in collaboration with insurance companies and non-governmental organizations, should launch nationwide financial literacy campaigns that educate people about the benefits of insurance and how it can protect them from financial shocks. For example, all the houses in Lagos State and every other state, should indeed be insured against fire and other natural hazards, not that people would now be begging government to come to their aid and ameliorate the impact of the loss, when infact, their insurance would have taken care of it.
This is where a collaboration with ARIAN would be very strategic! With its membership spread all over the country, registered agents are a moving force of education, information dissemination and propagation. They would go to the nooks and crannies of the country, spreading this message.
The collaboration that is needed here is for the other industry stakeholders, NAICOM, NIA, CIIN, should partner with ARIAN to train the agents and build capacity for the foot soldiers. This would not only reduce or eradicate poverty, it would also ensure that the message or information being passed the people is genuine, correct and knowledge-based.
3. Leveraging Technology to Increase Accessibility:
Technology can play a crucial role in making insurance more accessible to Nigerians, particularly those in rural areas. Mobile technology, for example, can be used to deliver insurance products and services to people who do not have access to traditional banking services, just like we have in banking. Any type of phone can do SMS at least. The use of digital platforms can also help reduce the cost of insurance, making it more affordable for low-income individuals and households. This I spoke about earlier and cannot be overemphasized!
4. Public-Private Partnerships and Collaboration:
The government should encourage collaboration between the public and private sectors to develop and promote insurance products that meet the needs of Nigerians. Public-private partnerships can be particularly effective in scaling up microinsurance and agricultural insurance initiatives, as they can leverage the resources and expertise of both sectors.
One of these collaborations and I am proud to showcase it here, is my company, International Energy Insurance Plc’s collaboration with the public sector, in this case, the Lagos State Employment Trust Fund (LSETF). Without doubt unemployment breeds poverty, so we partnered with the fund, an agency of government, that was created to provide grants and loans to micro, small and medium scale entrepreneurs, by participating and co-sponsoring the last edition of their summit, the Lagos State Employment Summit 3.0.
We didn’t stop there, we are still collaborating with the agency to select a crop of young people with brimming ideas of business in the small & medium scale category, train them at another partnership we have with the Enterprise Development Center (EDC) of the Lagos Business School (LBS), that would train them on business management and sustainability, by equipping them with sector or industry specific knowledge and information that would enhance their business and ensure it survives! Then they would have access to the loan and of course, their businesses insured by us – to secure and sustain it.
Case Studies and Real-Life Examples
To illustrate the potential impact of these policy recommendations, let us look at some case studies from other African countries where insurance has successfully contributed to poverty alleviation.
In Ghana, for example, the introduction of the National Health Insurance Scheme (NHIS) has significantly increased access to healthcare for low-income populations. The NHIS provides affordable health insurance coverage to millions of Ghanaians, helping to reduce out-of-pocket healthcare expenses and prevent families from falling into poverty due to medical costs.
We do have the Health Management Organizations (HMO) in Nigeria working on the same structure but how truly effective or accessible has this being in terms of penetration? Organizations have it and we benefit from it, but what about the market women and other artisans? Can they afford it?
I must commend the initiative of the Lagos State Government in this regard, with their Ilera Eko health scheme. I personally know a aged Grandma in Magodo area of Lagos, who attends my church. We had a discussion one day around her health and she told me she registered with the State Primary Health Center on her street and goes there whenever she wasn’t feeling ill and they attend to her much more than the general populace that came for free! They give her drugs and would refer to a General Hospital, should the treatment require specialist care. But the point is that, It is affordable and works. N8,500 would buy a cover a Family of Six for One year.
Similarly, in Kenya, the introduction of mobile-based insurance products has revolutionized the insurance sector, making it more accessible to low-income individuals and those in rural areas. One notable example is M-PESA’s mobile insurance platform, which allows users to purchase and manage insurance policies directly from their mobile phones. This innovative approach has significantly increased insurance penetration in Kenya and provided much-needed financial protection to millions of people.
These examples demonstrate that with the right policies and initiatives, insurance can indeed serve as a powerful tool for poverty eradication. Nigeria can learn from these successes and adapt similar strategies to suit our unique context.
Conclusion
Finally, increasing insurance penetration in Nigeria has the potential to be a game-changer in our fight against poverty. By providing financial protection to individuals and businesses, insurance can help create a more stable, predictable and sustainable economy.
Permit to speak as a professional practitioner, the industry has been doing, is still doing a lot in the areas of awareness creation to increase penetration but there is always room for improvement and more collaborations to achieve the target.
On this note, I Thank you, Ladies and Gentlemen for your attention!
