By Henry Uche
Over the past decade, insurance adoption in Nigeria has remained strikingly low, with penetration hovering around a mere one percent (1 per cent), a stark contrast to other African nations and developed economies. Insurance penetration is typically measured as the ratio of total premiums (gross written premiums) to a country’s Gross Domestic Product (GDP), expressed as a percentage. According to the latest available data (2022-2023), the leading African countries in insurance penetration are South Africa, with a notable 13 per cent of GDP; Morocco, at around 3.9 per cent (with a 4.2 per cent contribution to GDP); and Kenya, the leader in East Africa, with 2.4 per cent penetration and 2.8 per cent of GDP. These countries surpass the continental average, which is typically below 3 per cent. South Africa’s dominance notably skews the continental average upward, given its substantial market share.
The success of these countries can be attributed to several factors: a highly developed and mature financial and insurance market, higher income levels, a strong regulatory framework with a well-capitalized insurance sector, greater financial literacy, rapid growth in mobile and microinsurance, and increasing demand for life and health insurance. Additionally, compulsory insurance policies for areas such as motor insurance and employee benefits (like retirement annuities), along with robust government support and reforms, contribute to their leadership.
In contrast, Nigeria and many other African countries face challenges that hinder insurance uptake, including low awareness and understanding of insurance, limited distribution channels, low disposable incomes for many households, and widespread distrust or negative perceptions of insurance companies.
However, in response to these challenges, governments and regulators are actively promoting microinsurance, digital insurance platforms, and educational campaigns to increase insurance adoption. Additionally, the rise of Insurtech and mobile-based insurance products is gaining traction and holds promise for improving insurance penetration in the coming years. While the global average insurance penetration stands at 7 per cent of GDP globally: Life insurance at 3.5 per cent, and Non-life (general) insurance stands at 3.5 per cent, the United States, followed by China and Germany, has the largest and well-developed insurance market in the world by premium volume.
As the giant of Africa, industry stakeholders are worried about Nigeria’s position in respect to insurance adoption and penetration. Given the fact that Nigeria is a very big market in Sub-Saharan Africa, experts are beginning to think critically and strategically to figure out what the problem with insurance could be in the most populous black country.
They foresee that Nigerian youths are a huge market to explore, but debunking and refuting the wrong narratives about insurance is something all stakeholders, especially insurers, must work very hard to achieve. Some professionals have posited that to erase the deep-seated hatred for insurance in the subconscious minds of Nigerians may take another decade because the misinformation perpetuated by messengers of doom had eaten deep into the fabric of an average Nigerian.
Speaking with the President/Chairman of the Governing Body, Risk Managers Society of Nigeria (RIMSON), Mr. Gus Wiggle, on the issue, he said despite its benefits, several factors still contribute to Nigerians’ reluctance to embrace insurance. Chiefly among them is a lack of awareness and better understanding of the benefits of insurance and how it works, even among the well-informed persons in society.
Another issue begging for attention is the trust deficit. He said, “The historical experiences with insurance companies, such as delayed or denied claims, have eroded trust in the industry, but with the present team at NAICOM, they are really working hard at reversing this belief, and I think they are succeeding.”
“Affordability and low purchasing power, cultural and religious beliefs have had an impact on citizens embracing insurance. Can you believe some people have this perception that insurance is a luxury because they lack understanding and therefore prioritize other financial obligations over insurance needs or premiums? The Nigerian insurance industry has been slow to innovate and adapt to changing consumer needs and technological advancements, while many still rely on traditional distribution channels, such as agents and brokers, which may not be effective in reaching a wider audience.”
Wiggle, who was a former Chairman of the Nigerian Insurers Association (NIA), stressed that addressing these challenges would require a concerted effort from insurance companies, regulators, and other stakeholders to increase awareness, improve products and services, and enhance the overall customer experience. Only then might Nigerians embrace insurance.
Moreover, to address these inhibitors, the insurance expert affirmed that there is a need to increase the awareness and understanding of insurance, its benefits, and its importance. “There should be continuous attempts to collaborate with educational institutions, community groups, and NGOs to promote insurance literacy in the country.”
He added that there should be a deliberate approach to simplifying insurance products and developing easy-to-understand insurance products and services. “I know some of them are already taking this route. While also expanding distribution channels by utilizing alternative distribution channels, such as mobile networks, banking agents, and retail outlets.”
Wiggle, who is the Principal Consultant at Carefirst Consult, maintained that stakeholders cannot get tired of talking about the trust issues. “As I said earlier, the regulator is doing a great job here. The insurance companies should deliberately improve claims settlement processes by ensuring timely and transparent claims settlements to build trust, and then enhance customer service by providing excellent customer service to address concerns and complaints.”
“Again, yes, NAICOM is doing a marvelous job here, but we can be culturally sensitive by developing insurance products and devising marketing strategies that respect and accommodate cultural and religious beliefs.”
On incentives to attract subscribers, he posited that there are just so many incentives to attract subscribers, but they must be within the law; otherwise, it will be seen as promoting unethical practices in another way.
“I will therefore not want to name too many but can include ‘deserving discounts, bundle discounts, no-claim discounts, free add-ons, etc.’ Another could just be flexible payment options, provided it is endorsed in the policy document so as not to raise another issue at the time of a claim.”
By offering these incentives, the former MD/CEO of Linkage Assurance believes that insurers can differentiate themselves, attract new subscribers, and retain existing policyholders.
On the side of enforcing compulsory insurances, he added that this could be challenging, especially where there are weak regulatory frameworks, inadequate laws, regulations, and enforcement mechanisms, which can hinder effective implementation.
“Corruption can undermine enforcement, as officials may accept bribes or turn a blind eye to non-compliance. It is therefore imperative that public awareness and education of compulsory insurance should be given proper attention. Other common challenges in enforcing compulsory insurance include: difficulty in identifying and tracking individuals who fail to comply with compulsory insurance requirements because of lack of technology, but I will give it to Lagos State, which is applying digital enforcement on compulsory motor insurance.”
“Moreover, where there are limited penalties and sanctions for non-compliance, it would encourage violators to default, and where there is inconsistent enforcement across different states and unequal treatment, it would undermine the effectiveness of compulsory insurance. Apart from Lagos, Abuja, please remind me which state enforces compulsory insurance,” he queried.
Though some persons have asserted that stiffer sanctions could be counterproductive, Wiggle explained: “It is like the common story—the chicken and the egg—which comes first? But in all, it’s a win-win for all. It benefits all parties, and all parties are losers when there is no enforcement of compulsory insurance. However, some may hold the view that compulsory insurance can disproportionately affect vulnerable populations, such as low-income individuals or small businesses, who may struggle to afford premiums and are exposed to the risk of losing assets they may not be able to replace when the unexpected happens.”
On his part, the Deputy General Manager (DGM) Corporate Communications & Investor Relations, Sovereign Trust Insurance Plc, Mr. Segun Bankole, highlighted the ‘dearth of culture of insurance’ in Nigeria as a bane to the industry. Aside from that, the government on their side has not been doing well in terms of implementation, just as Mr. Wiggle pointed out.
“If you go to saner and advanced climes, hardly would you touch anything that has no element of insurance, and you dare not. Over there, there is always a budget for insurance on a monthly or quarterly basis. It’s their lifestyle, and it’s strongly backed by the government. When you are caught without insurance, it’s a crime in its entirety and you will pay a penalty, but here, we like to talk but not implement things.”
The DGM pointed to religious beliefs as another inhibitor. To recall, Nigerians are very religious people who profess to be covered under the protection of their God or other gods.
Bankole berates clergymen who encouraged their congregants to pay some amount of money in different guises as a cover for their life and properties.
“Aside from these, the meager disposable income of Nigerians is an issue; it is a limiting factor that forces people to defer insurance. So the bad economy is an issue. By the way, how many government vehicles and public properties/assets are insured? They don’t insure because when anything happens, they will dip their hands into the coffer and replace them with public funds,” he decried.
Comparatively, he added that, with the hindsight of his professional experience in the industry, he categorically affirmed that the private sector takes insurance more seriously than the public sector. Even some people who do insurance would want to always circumvent the system—a proof that Nigeria has a system that does not support the insurance industry. Because if we had a very tight-knit insurance policy, backed with full implementation, everybody would have one form of insurance or another. So implementation is the bane.”
He looked towards South Africa, Kenya, and the likes of them as African leaders with respect to insurance, saying, “We only talk, we don’t walk the talk in this part of the world. Take, for instance, third-party motor insurance; it doesn’t concern some people. Do the ‘yellow buses’ have insurance? What kind of regulation is that when a particular sector is taken off from implementation? And you know everything is from the top. Yes, because if everyone, especially those at the top, are living by example, you will see that everybody will fall in line. So, it’s both socioeconomic and religious issues. If I take 10 percent of my two million naira salary, for instance, and give it to the church (when I know that with this 10 percent I can actually insure my property), and believe that I have spiritually covered my assets, and nothing would happen, but when the inevitable happens, the pastor will just say, ‘God gives, God takes.’ It’s worrisome. There must be a reconstruction of the mindset for people to know the truth and be free to make the right choices and decisions. We need a situation where people would see insurance as an integral part of their life, but the government has to play its own role.”
To address these issues, he stressed that when people know that the consequences of not having basic ‘insurance covers’ are graver in real-time than the consequence of you running afoul of collecting premiums from an insured and not providing compensation when it matters, everyone will sit up. But first, there must be a culture of insurance and a system in place to enforce it, and it must start from the top.
“Give God what is God’s, and give to Caesar what is Caesar’s, insure your property. The issue of 10 percent is what is causing problems today, and a lot of religious leaders have rewritten the story: if you don’t pay 10 percent, you won’t go to hell. By the way, 10 percent is the proceeds from the farm. Look at professional indemnity insurance—taken by the likes of architects, medical doctors, engineers, etc. When anything happens, your professional indemnity should be able to stand for them. Something must compensate.
“God Himself instituted insurance when He was going to destroy the world during the first time of creation. That Noah’s ark was insurance. After the flood, God does not need to go through the stress of re-creating everything again because everything (male and female) was covered in the ark—insurance. So insurance takes you back to your former position after the loss. So insurance is not something to be taken lightly. Sadly, someone who does not have a culture of insurance, when he gets to London, UK, or Canada, do you think he won’t cultivate that culture immediately? We have seen Nigerians who traveled to Canada, the UK, and other countries, telling us they want to buy a car, and the government over there was asking them for insurance. So, you don’t value insurance here, but when you get to those countries, you do insurance because if you don’t, they will repatriate you. There is a mindset shift when they get to those countries. It’s so sad that in Nigeria, anything goes as long as money is involved. And until we have a structure, a system that works, we will not get it right. And this is what we have been clamoring for: if insurance worked here like it’s working over there, do you think we would have this mass exodus? Though Lagos State is trying, but that is still too little. It’s too little. The government should be proactive. But the idea of waiting for laws to work is not enough. We need robust enforcement and compliance with the existing laws.”
In conclusion, Nigerian insurers must learn to embrace the local culture and design their products accordingly, but more importantly, when it comes to insurance, the Nigerian government must lead the way. To sustain the industry, stakeholders must work together to shift public perception and ensure that insurance becomes a cultural norm across Nigeria.