How poverty, superstitious beliefs impede insurance expansion in rural Nigeria
By Henry Uche
For decades, insurance enthusiasts and the federal government have designed suites of transformational strategies to drive aggressive insurance penetration and expansion, especially in rural Nigeria.
But despite these moves, insurance uptake in Nigeria with a population of over 200 million, remains at less than one per cent, defying all efforts.
Analysts have attributed the challenge to various factors, including poverty, ignorance and the hurting belief in the potency of charms and sorcery, popularly called ‘African magic’–as opposed to having an insurance cover to take care of unexpected calamities.
Daily Sun checks on many rural players in the Micro Small and Medium Enterprises (MSMEs) space reveal a disturbing scenario. Many traders told Daily Sun that they rely on the strength and protection of their forefathers sourced through traditionalists in their villages to shield their businesses from harm.
In some cases, locally-prepared charms are buried in shallow burrows at the entrance of the shop to ward off burglars, fire or any other unseen challenge that may befall them.
They said they preferred that to procuring insurance, which they see as an officially-designed extortion template to swell revenue with negligible or zero benefits to them.
In an interface with the Managing Director of Smart Farms Limited, Lagos, Mr. Douglas Chukwudi, he explained that his faith in God has been his source of security, and for that reason, subscribing to insurance coverage was unnecessary in his view.
“To me, trusting in God’s protection is all I need. I don’t believe in insurance because I strongly rely on God to shield me from harm,” he said.
Chukwudi, an agripreneur engaged in a mixed farming system that includes snails, dogs, vegetables, and poultry, admitted that he has limited knowledge about insurance and the potential benefits it offers to businesses like his. He also shared that hearing about the experiences of colleagues who had unpleasant encounters with insurance companies further discouraged him from considering any form of insurance.
“My life and business are insured in Christ Jesus. I don’t believe in uncertainties or unfortunate incidents for me and my family. So, I don’t think I need insurance. I don’t want their ‘wahala’. I believe that whatever you speak into your life is what happens to you.”
Similarly, Tunde Oladeji, a medium-scale herbal medicine practitioner, also finds no need for insurance. He said that while insurance might be useful for some, it is a waste of time for him due to his spiritual practices. “I possess spiritual powers that allow me to foresee future events. With this, I can avert bad situations for myself and others. So, why would I need insurance?” Oladeji queried.
As a self-proclaimed spiritualist, he shared his belief that no harm would come to him because of the charms and concoctions he relies on for protection.
“I know about insurance and I’m not against it. If people want to go ahead and buy protection from insurance companies, that’s fine. But everyone has their own beliefs. For me, my spiritual powers work just fine.”
He elaborated further, “People may not say it, but they rely on different things for protection. Some carry charms passed down from their ancestors. Life is spiritual and everyone has their own form of insurance, whether it’s through faith, charms or traditional practices.”
In contrast, Musa Yaya, a moderately educated businessman operating a small kiosk in Ibadan, had a more practical view of insurance. He shared that although he had long known about the importance of insurance for businesses, financial constraints had prevented him from subscribing to any coverage.
It was not until he heard about Takaful insurance—a form of Islamic insurance—that he began considering it seriously.
Introduced in Nigeria by African Alliance Insurance in 2005, Takaful insurance is designed to reach out to individuals and businesses in rural areas.
Yaya explained that while he recognises the value of insurance, lack of funds has been a barrier.
“I’m not against insurance. I want to get coverage for my business, but I can’t afford the premium. They said if I don’t pay, they won’t compensate me.
If something happens, like a fire or theft. But by God’s grace, I’ll save up and get insurance next year because I know anything can happen,” he promised.
On the other hand, some individuals prefer to rely on traditional beliefs for protection rather than seeking insurance. They would rather invoke the spirits of their ancestors than pay for coverage.
This mindset was notably evident following the devastating fire that razed over 300 shops in Balogun market, Lagos Island, in April this year.
Goods worth over ₦5 billion were destroyed and traders were left licking their wounds and counting their losses.
Despite the magnitude of the disaster, Daily Sun discovered that many of the affected traders did not have insurance.
Mr. Abiodun Azeez Alani, a shop owner at Number 26 Dosunmo street, who deals on decorative lighting and tailoring materials, shared his reasons for not having insurance.
“II’ve been in this market for about 30 years. We don’t really trust insurance companies. When incidents like this happen, they come up with excuses and won’t pay. But if we could find a reliable partner, why not? The problem is they don’t treat ordinary people well,” Alani lamented.
Another victim, Mr. Jonathan Umeh, a textile trader, had a similar story. His two shops were destroyed in the fire and despite his business being worth over ₦100 million, he had no insurance.
“An insurance company refused to cover us because of the market’s layout. I regret not approaching another company for coverage, but life goes on,” Umeh said, expressing his frustration.
He added that he has little hope that the government would provide any meaningful assistance, citing corruption as a major concern.
These stories illustrate the deep-seated distrust and financial challenges that hinder insurance penetration in rural and small-scale business communities in Nigeria. Many individuals either do not have the means to afford insurance or are skeptical of its effectiveness, opting instead for traditional methods or faith-based protections.
Mrs. Lilian Ijeoma Amaechi, a trader in Alimosho area of Lagos admitted she was not ignorant of insurance but said she needs more illumination to appreciate the gains of it.
“Of course I know there are risks associated with any business, even the life we live, the environment, the country is full of risks. But as I said, I have not seen them in this environment, if I see any of them, and they convince me, without any secret or hidden clauses, why won’t I engage them? I remember I heard some market women saying the other day that, some insurance companies don’t disclose everything you need to know to the letter, they don’t explain everything sentence, all the terms and conditions: letter by letter, word to word, even some of their conditions are not clear enough, I mean the font size, there must be something they would want to hide from you so that you will fall victim, so that you would make one mistake or the other, because they are looking for a way to make you forfeit your claim, sometimes when something happens, that thing you insured against happens, they begin to give you a different interpretation and meanings to some words or phrases.
“Sometimes, if you remember all these things, we are discouraged. As for insurance, I know about them, but till I see the original one, please leave me with my convictions” she implored.
Nwowu Maureen Ifeanyi, an agricultural entrepreneur and bird farmer at Ejigbo area of Lagos mainland, admitted that she was not unaware about the existence of insurance companies in Nigeria – particularly in Lagos and their relevance to other businesses.
As an educated poultry keeper, she said keeping birds of different species (broilers, ducks, turkeys, cockerels, layers, quails, guinea fowls etc), is not only tasking but laced with high risks. She said she has been in the business for over a decade without any insurance cover, largely due to high cost of operation.
“I can’t afford to purchase feeds/ foods, medicals and other expenses for my birds at very exorbitant prices and have to reserve for insurance cover”, she said. She also accused some underwriters of not being sincere, alleging that they always find ways not to pay compensation.
“We must investigate any insurance company before you engage them. There are many of them in Nigeria, some are faithful, some are not, so it’s left to us to know which one to take a cover from. In the midst of unfaithful ones, there are faithful ones” she noted.
Poor access to information on insurance products and benefits
Another challenge to poor insurance penetration especially in many rural areas is that residents have poor access to communication infrastructure like the internet, television and newspapers, limiting exposure to information about insurance products and services.
Closely related to this is high rates of illiteracy in rural communities make it challenging for residents to understand complex insurance concepts and the benefits of coverage.
Again, some cultural and religious beliefs may discourage the purchase of insurance, as people may rely more on traditional coping mechanisms or see insurance as unnecessary.
Economic constraints
High poverty levels mean that many rural inhabitants prioritise immediate needs over perceived future risks. The current scorching economic climate is deterring subscribers from procuring insurance or servicing existing contracts. More so, the cost of insurance can also be prohibitive for those with limited financial resources.
Additionally, a history of negative experiences, such as non-payment of claims or inadequate service, can lead to mistrust of insurance companies, deterring potential customers.
This has forced the National Insurance Commission (NAICOM) to be stricter in its regulatory policing.
It recently threatened to name and shame insurance companies that are unrepentant defaulters in prompt insurance claims settlement.
Limited presence of insurance providers
According to industry analysts, insurance companies often focus their operations in urban centers, leaving rural areas underserved. The lack of presence contributes to a lack of awareness and availability of insurance products.
Many have also observed that Insurance companies may not effectively target rural populations in their marketing efforts, resulting in a lack of awareness and understanding of insurance products.
Additionally, the complexity and variety of insurance products can be overwhelming, particularly for individuals who are unfamiliar with the industry. Simplifying the products and tailoring them to the needs of rural residents could help increase awareness and uptake.
Way forward
Addressing the issue of low insurance penetration in rural areas of Nigeria requires a multifaceted approach.
Experts are aggressively pushing for broader education and deepened awareness campaigns.
Also canvassed is community outreach programmes.
Stakeholders harp on organising regular community meetings, workshops, and seminars to educate rural populations about the benefits of insurance and how it can protect them from financial risks.
More so, information should be disseminated in local languages to ensure that it is accessible to all community members. There is also an urgent need to collaborate with traditional and religious leaders who are trusted figures in the community to endorse and promote insurance products.
Microinsurance
Stakeholders say there is a great need to develop and offer microinsurance products that are affordable and tailored to the specific needs of rural residents, such as agricultural insurance for farmers.
Again, there is a need to create straightforward and easy-to-understand insurance policies with minimal jargon, making it easier for potential customers to comprehend the terms and benefits.
Mobile technology
With mobile phones and other electronic infrastructure becoming the rule, there is a need to utilise mobile technology for the sale and distribution of insurance products. Mobile platforms can facilitate premium payments and claims processing, making insurance more accessible.
There is also a need to increase the presence of insurance agents and brokers in rural areas to provide face-to-face interactions and personalized services.
Partnerships with microfinance institutions
Many push for a deep collaboration with microfinance institutions and cooperatives that already serve rural communities to distribute insurance products.
More so, the federal and state governments have been urged to provide subsidies or incentives for insurance companies to offer products in rural areas, making it financially viable for them to serve these communities.
Another area of partnership is with telecom companies to send educational messages and promote insurance products through SMS and other mobile platforms.
Mandatory insurance policies
This is already being championed by NAICOM and stakeholders want more aggression to drive it.
There is also a need to implement mandatory insurance policies for certain high-risk areas, such as crop insurance for farmers, to ensure broader coverage.
Transparent claims process
Insurance subscribers have been screaming this in deafening resonance. Ensuring a transparent and efficient claims process to build trust in insurance companies. Quick and fair settlement of claims will encourage more people to purchase insurance.
They also called for the strengthening of consumer protection laws and regulatory oversight to safeguard the interests of policyholders and prevent fraudulent practices.
Weather-index insurance
Many believe that introducing weather-index insurance products that provide payouts based on predefined weather conditions will reduce the need for individual loss assessments.
Again, stakeholders believe that offering affordable health insurance packages tailored to the specific health risks and needs of rural populations will help deepen penetration.
Financial literacy
Integrating financial literacy programmes into community development initiatives to help people understand the importance of financial planning and risk management.
Additionally, including basic insurance concepts in the school curriculum to foster a culture of awareness from a young age will help.
Experts insist that by sincerely addressing the aforementioned key issues, insurance penetration in rural Nigeria will be boosted and ultimately build a stronger economy at the subnational level.