Monday, May
20, 2019 / 03:15PM / By Segun Adeyemi * /Header Image Credit:
Late last year, I published a guide to the FinTech ecosystem in Nigeria with a snapshot of the most active players across
key verticals. While I was preparing that guide, I could not find a pure
digital first insurance platform to include and had to settle for the
comparison and listing platforms. Some of the recurring questions I have been asked
since then is “where are the digital insurance platforms and why aren't
startups building for the insurance vertical in Nigeria?”. In answering these
questions, I did a bit of research and decided to share some of my findings and
thoughts.
For context, the insurance industry in
Nigeria is one of those largely untapped sectors when you consider the
possibilities on a macro level. Although the gross premium income has grown to
about N448Billion in 2018 and the industry witnessed a CAGR of 25% between 2012
and 2016, the insurance penetration in Nigeria today is just about 0.5%. This
is one of the poorest in Africa when compared to countries like Ghana (1.1%),
Kenya (2.8%) or South Africa (17%). According to a survey conducted by
Chartered Insurance Institute of Nigeria (CIIN) in 2018, out of about
100million adult Nigerians, over 86 million do not have any form of insurance.
Also, the insurance density in Nigeria (a measure of industry gross premium per
capita) is reported to be one of the lowest (US$6.2) in the continent with
South Africa (US$762.5), Kenya (US$40.5) and Angola (US$30.5).
This poor performance coupled with the
strategic importance of deep insurance industry to an economy, suggests that
there is a gold mine that is waiting to be tapped in the space. The question
then remains why is there very little activity from Nigerian startups in the
insurance space. This is my attempt to summarize and highlight a few reasons
why the industry has been generally underwhelming (from a retail insurance
perspective). Also, why it has been largely avoided by startups and some ideas
on what can potentially be done differently by entrepreneurs and innovators
looking to get into the insurance space.
First of all - Nigerians Don't Buy Insurance.
Why?
“Indifference”. For the majority of people,
they just don’t care! Nobody wakes up thinking about buying insurance. In
Nigeria, different reasons have been postulated for this indifference but I
have highlighted the few that I believe to be most fundamental.
Lack of Instant Value/Benefit
I started with this point because it is
applicable to the largest category of Nigerians. Many people struggle with
delayed gratification, even rich people. While purchasing most insurance
products, customers typically do not get any value instantly. People feel like
they are paying for something they will most likely never use or if at all, the
value is much later in the future. For this reason, many people relegate
insurance to the background as something to think about much later when they’ve
sorted more pressing bills.
Religious and Cultural Belief
Our culture and religion have more influence
on many of us than we give it credit for. Nigerians are very religious and
superstitious. In a country where there are people who will not take
medications when ill because their doctrine doesn’t support it, buying
insurance for such people could be regarded as a lack of faith. There are also
individuals who think buying insurance means they might attract whatever loss
it is they are protecting themselves against. For many Nigerians, we see our
family and friends as a form of insurance. Beyond this, many individuals employ
a common phrase to get insurance marketers to back off with their aggressive
efforts "God is my insurance".
Lack of Awareness & Illiteracy
Nigeria’s adult literacy rate is about 59%
which is bad enough considering our size but the real concern here is the
possibility that 80-90% of the seemingly literate population do not know or
understand what insurance is all about even if they’ve heard about it. For
those few people who know about it, many do not have enough information and
awareness on the where, why and how to go about purchasing insurance.
Trust
This is one of the biggest challenges to the
adoption of retail insurance in Nigeria. For the few people who have managed to
buy insurance, a large proportion reported having a bad experience when it's
time for the insurance companies to pay claims. Sometimes this is due to the
cumbersome and manual processes that the companies employ to validate claims
and check fraud. However, this is not an acceptable excuse for an industry that
is struggling to drive adoption. This mistrust will discourage more people who
are already reluctant from seeing the need to buy insurance because the
question will remain, will they pay claims?
Affordability
I believe this is a product design problem
and there are several good attempts to solve this. There are people whose
income can accommodate insurance but still do not have insurance because they
cannot afford the current payment structures. As with many things in Nigeria,
many insurance policies require a lump sum annual payment that most people do
not have when they’re also paying a lump sum for things like rent. For this set
of people, affordability simply becomes the reason they do not buy insurance.
Large Informal Workforce
For the majority of Nigerians that have
insurance today, it is through their employer. I do not want to imagine what
our insurance numbers would look like if not for compulsory insurance schemes for
corporates. However, corporates employ only a small proportion of the
workforce. The bulk of the population is employed by SMEs who are struggling
for survival and rarely have the leeway to offer insurance as a benefit. Even
though regulation is working to address this, enforcement has been a challenge.
For freelancers/self-employed or micro-entrepreneurs, most insurance products
are not designed or marketed in ways that appeal to these individuals.
Macroeconomic Structure (Poverty)
For the poverty capital of the world where
people are struggling to afford the basics like food, clothing and shelter,
insurance is usually regarded as a luxury. A large percentage of the population
is just too poor to afford insurance. In fact, we can bundle many other reasons
mentioned above under poverty as the primary reason for poor insurance
performance in Nigeria. It is common for most poor countries like Nigeria to
have low insurance penetration. I have mentioned poverty last because even
though an estimated 80 million Nigerians live below the poverty line, I believe
it is worth investigating the reasons the other millions of people who do not
fall in this category aren't also buying insurance.
Difficult Market
While I have highlighted some of the reasons
I consider to be fundamental above, the list is by no means exhaustive. This
explains how hard it is to sell in Nigeria today. It is only rational then that
if most people do not buy or appreciate the need for insurance in Nigeria
(except when it’s compulsory and they can’t avoid it), startups will have
little incentive to build for it.
Limited Domain Expertise
Similarly, I do not believe there are many
entrepreneurs in Nigeria that have deep enough experience and understanding of
insurance and technology spaces to build impactful InsurTech companies. In
comparison to other areas of the financial services such as banking, asset
management, payments, lending, etc, the insurance space has not been as big a
technology adopter and has therefore not attracted or produced enough
technology talents that have the domain expertise and unique insights that are
required to play in the space.
Regulatory Issues
Like other financial services verticals, the insurance space is heavily regulated, and the regulators here have not been as visible as their peers in the CBN. Also, the cost of acquiring a license is beyond the reach of many startups. Without a booming market or deep domain expertise to rely on, it becomes difficult for startups to convince investors to commit the required capital to kickstart such ventures. The regulatory issue is a lot deeper and I will shed more light on it later.
Considering this salient challenges I have
highlighted, how then do we leverage digital technology to grow the insurance
space in Nigeria? My position is that we need new thinking and innovation
across the value chain and I have discussed some thoughts on how we can
approach some of the highlighted challenges.
New Tailored
Products
Our insurance products as we know them
today need to be redesigned if we want to reach more people. There are four
areas that I think are worth focusing on when designing new insurance products
Instant Benefit: Many Nigerians haven’t shown a good appetite for
delayed gratification and always want to get instant value for their money.
Many insurance products are futuristic in nature which explains why most
Nigerians struggle to comprehend the value. Now, imagine a health insurance
product that gets you 5 free full body checkups, or 10 free visits to a local
clinic or gym, or buying car insurance and getting a free car tracker and car
servicing instantly, or you buy phone insurance and get a free screen protector
and phone case, or getting gadgets like fire alarms, fumigation instantly etc
for home insurance. The list is endless because Nigerians are not the type of
people that want to buy something that they will only get the benefit later, I
believe giving them something no matter how small at the point of purchasing
insurance will be a good incentive in driving adoption.
New
Distribution Channels Through Partnerships
After designing these nice and specific
products, it needs to be presented to customers at the right time, preferably
at the point where they’re making a related purchase. That idea of sending
marketers out to randomly go and hassle people to buy insurance needs to stop.
For example, it makes sense to distribute phone insurance on an e-commerce
website while a customer is buying an expensive smartphone, or sell health
insurance to someone at a pharmacy or clinic onboarding them with just their
phone’s USSD. Therefore, players need to invest in new mass channels and
partner with other stakeholders who have channels that already reach the
customers that they are looking to engage. This includes both digital channels
like USSD, web and mobile apps, etc and also offline channels like agents and
retailers in rural areas just as the banks are doing.
Aggressive
Sensitization & Marketing
It is not enough to design new products and
distribute them well, there also has to be a very deliberate, mass education
and sensitization about the importance of insurance. This needs to be done in
plain English (without the technical jargons) and local languages. This is
something that all stakeholders need to come together to tackle. Beyond just
regular awareness campaigns and ads, relevant ideas that can be implemented
here include:
In my conversation with a few players, there seems to be a consensus that the regulators are their biggest problem and the reason they haven’t been as innovative as expected. Even though I believe the ideas presented above will help drive the adoption of insurance in Nigeria, they aren't necessarily novel and will not be implementable without support from regulators. I have heard comments like “everything you want to do has to go through the regulators, even ad campaigns, they take a lot of time and they’re not the most receptive to new ideas”.
While I empathise with this assertion, I refuse to believe that the regulators are deliberately on a mission to stifle growth and suck the life out of the industry. The big issue I have noticed is a communication and engagement gap, there is very little interaction between the members of the insurance regulators and the broader ecosystem.
The onus is on the operators to engage the regulators more tactically by clearly communicating and showing how their ideas and initiatives benefit the consumers, the economy and even the regulators. The regulators play an important role that cannot be ignored and therefore need to be courted accordingly. I believe with regular, transparent and respectful engagement, a lot of the policy changes that are needed to drive insurance adoption in Nigeria will be achieved. In engaging regulators as innovators, I believe we can be disruptive without being cantankerous.
A cooperative and active regulation can lead
to significant growth, especially in areas such as the enforcement of
compulsory insurance, weak underwriting, premium leakages, etc
While the insurance space in Nigeria is a tough nut to crack, the opportunities remain largely untapped and begging to be taken by those ready to do the hard work and play the long term game. I strongly believe there is an opportunity for new innovative players to build big businesses with a significant social and economic impact in this space.
I believe Nigerians will buy insurance when
they are well informed of its benefits, it is simple, cheap and offered to them
at the right time, at the right price and with the right incentives.
*Segun Adeyemi, is a content contributor and a Fintech specialist, with several years of experience in Nigeria’s Fintech space, the opinions expressed in this article are strictly his own and do not, necessarily, reflect the opinion of Proshare Nigeria Limited’s Board , management or editorial team.
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