Nigerians are renowned for having a strong sense of entrepreneurship and being open to investing in a variety of goods and services. Insurance is still a less common option, though. This begs the question: given that insurance protects against financial loss, why do Nigerians avoid it?
Essentially, insurance is a method of risk transfer in which an insurer, or corporation, agrees to pay the policyholder, or insured, for financial losses brought on by particular circumstances, such as disease, accident, or property damage, in exchange for a reasonable premium.
Insurance has served as a safety net for many people throughout the world, but Nigeria offers a stark difference. Out of the approximately 100 million adult population, only 13.4% (CIIN) of the population is insured, or 13.4 million people.
A 2018 poll by the Chartered Insurance Institute of Nigeria (CIIN) revealed that 86.6 million persons in the country lack any kind of insurance coverage, underscoring the poor penetration rate.
Agusto & Co.’s 2022 study, which shows that just 0.5% of Nigerians have insurance, presents an even more dire picture. These numbers highlight how critical it is to investigate the reasons behind Nigerians’ poor insurance uptake. Below, we examine the several determining factors:
Total Reliance on Divine Intervention
Nigerians are renowned for having strong spiritual beliefs. Financial planning and insurance decisions, among others, may be influenced by this devoutness. An example of this influence during the rainy season is provided by the following two neighbours:
Neighbour B is a practical person who is always prepared, while Neighbour A is well-known for their everlasting faith and charity. Neighbour A prays for heavenly protection when a strong downpour threatens their homes.
Neighbour B, on the other hand, contacts their insurance provider right away to make a claim. Days later, as Neighbour A is still coping with the storm’s aftermath, repair crews are already on Neighbour B’s roof.
This comparison draws attention to the various methods of risk management. Although Neighbour A’s religion is admirable, it does not offer instant protection from damage to property.
Despite being a monetary outlay, Neighbour B’s insurance has shown to be an invaluable safety net. Life may be erratic. There is little knowledge about the future, thus making decisions is always dangerous.
You can safely reduce potential losses with insurance. Insurance offers a concrete safeguard against financial difficulties, whereas religious faith offers spiritual security.
Lack of confidence in insurance providers to fulfil claims
The public’s impression of insurance companies’ tardy claim settlements is another obstacle impeding the penetration of insurance in Nigeria. Although insufficient capital and other circumstances were the cause of previous problems, the National Insurance Commission (NAICOM) has taken action to resolve them.
The Insurance Act 2003 was passed by the National Assembly in 2003, bringing in new rules and mandating higher capital requirements for insurance firms. Depending on the kind of insurance provided, different minimum capital requirements applied, ranging from ₦150 million for life insurance to ₦350 million for composite and reinsurance businesses.
In June 2005, NAICOM tightened restrictions even more in an effort to strengthen the industry’s overall financial stability and capability to absorb risk. In the end, this resulted in the 2007 industry consolidation.
The capital base requirements were then raised to ₦5 billion for general business and ₦3 billion for life insurance. Notably, in preparation of a potential tier-based recapitalisation, some corporations have already increased their capital to above ₦10 billion.
For example, Coronation Insurance is one among the top insurance firms in Nigeria to deposit your risk, with a Gross Written Premium (GWP) for 2023 of ₦18,751,063,000.00. Moreover, the amount of claims paid in 2022 was ₦3,107,665,578.81, and in 2023 it was ₦3,715,278,840.96. These numbers confirm that insurance providers do honour claims on time.
Economic factors and insurance costs
Many Nigerians place a higher priority on short-term expenses and necessities than on long-term financial planning, which includes insurance. There are various reasons behind this strategy. A limited savings culture, frequently brought on by poor income, could be one of the causes. Because of this, Nigerians frequently turn to their faith in order to handle unforeseen situations.
Nonetheless, the environment is shifting due to the growth of financial inclusion programs. Nigerians in the informal economy and low-income groups now have easier access to retail and micro-insurance products.
While these policies are customised to meet customers unique demands and budgets, they provide advantages that are comparable to those of typical insurance plans.
The E-term insurance product from Coronation is an example of an economical insurance policy. It insures the insured against death, critical sickness, and permanent disability, and the premium is only ₦5,000.00 for a one-time payment of ₦500.00 per month.
Lack of knowledge
There’s nothing greater than ignorance. It can be challenging for someone who doesn’t know something to internalise it and act on it. This problem with how the Nigerian population views insurance is a widespread one.
Despite suffering losses, many Nigerians find it difficult to understand the advantages that insurance provides.
It can offer much-needed stability in the face of unforeseen circumstances, assisting people in recovering from financial setbacks. To surmount this ignorance, ongoing public involvement and instructional initiatives are needed.
ignorance on the availability of insurance goods
Insurance knowledge extends beyond fundamental ideas. Many Nigerians are unaware of certain goods that could be able to meet their particular demands. For instance, some people might know about third-party auto insurance but not about the choice for third-party fire and theft.
Even if a complete plan could be out of your price range, the insured is protected against fire and theft with this more robust and reasonably priced coverage. Insurance firms can aggressively promote a greater selection of products that are pertinent to the needs of the public in order to close this knowledge gap.
Consider insurance for business disruption. Due to its ability to safeguard against lost revenues in the event of business disruptions, this lesser-known product can be quite helpful to entrepreneurs.
The steps required in purchasing insurance
Many Nigerians frequently point to a convoluted insurance purchasing process and a confusing policy as reasons not to get insurance. It would be nice to have quicker response times for policy documentation when onboarding new employees and when processing claims.
In conclusion, these are a few of the elements influencing Nigeria’s low insurance adoption rate. Nonetheless, the industry is making a concerted effort to resolve these issues.
The industry Gross Written Premium (GWP), which increased steadily to ₦1 trillion at the end of 2023—a 27% increase from the year before—is proof that service delivery has greatly improved (NAICOM). Still, there’s space for improvement.
