We have a very exciting fintech (financial technology) sector in Nigeria. But that fintech has technically equated to bank-tech as startups are focusing on what the banking sector is doing, neglecting other areas in the financial industry. Startups have left on the table a latent opportunity in the insurance sector. As I have noted many times here on Tekedia, the insurance sector has more opportunities than even the banking sector. While the insurance companies are lethargic on their capacities to unlock the opportunities in the industry, blaming Nigerians for not patronizing insurance policies, the banks are ready for whatever you throw at them. Yes, the banks can be fintech or bank-tech if they want because they have the capabilities to execute at the highest level.
But when you come to insurance, the lack of productivity gain through information technology is truly unfortunate. The sector has not found how to unlock new vistas despite the opportunities in front of them. I see moments of glory for founders with guts to attack the sector.
But be warned, the insurance industry regulator is extremely tough to deal with. The National Insurance Commission of Nigeria (NAICOM) is not like the Central Bank of Nigeria which publishes policy documents to provide guidance which startups can operate. (I do think that NIACOM is doing a good job. It has to be tough to police and sanitize the sector. Nevertheless, it has to evolve and create a balance to allow innovation.) Also, the layers in insurance with brokers below the insurers, and the insurers under the re-insurers, create a highly complicated pyramid. You cannot be a good insuretech if you are just a broker. Yes, I do not think having a brokerage license will add any value to any serious insuretech. You need to have an insurance license to do this disruption in Nigeria.
Here is why: no matter any product you can conceive in Nigeria, if there is no insurer that will insure it, it is dead on arrival. And many of them cannot insure because they are extremely conservative in their risk models. How do I know? I know by working with farmers. If not for the federal-owned Nigerian Agricultural Insurance Corporation (NAIC), most farmers will not have any place to insure. The private sector participation in the agro-insurance is largely negligible. Again, you may not have to blame the insurers: the farmers have attitudes. So, at the end, that trust element is broken and insurers are right to be cautious.
That trust element is why the sector has not grown as one could have expected. The sector is tough and I will not diminish that.
A fresh recapitalisation in the nation’s insurance industry owing to its low capital base and penetration has spurred mergers and acquisitions to reposition the sector for a new era of efficient operations.
The move, according to stakeholders, is part of efforts by the National Insurance Commission (NAICOM) to make the sector once again attractive to Nigerians.
Following the apathy for the industry, mainly caused by acts of omission and commission manifest in the forms of non-payment of dues to policy holders and the shirking of other obligations over the years, the citizens now avoid insurance products. To reverse the trend, it has, therefore, become incumbent on the regulator to win back the confidence of Nigerians by strengthening the financial base of the sector. If the sector comes fully alive again on the basis of the new policy, the incidental benefits are many. Jobs will be created and the contracting national GDP may experience a breather and an opportunity to expand.
Broadly, I do not really blame the insurers. It is very possible that Nigerians are not interested in insurance. However, that excuse remains lame: most times, people are not interested in things they do not see any value. Nigerians were not interested in banking, until they became interested in new generation banks. The new banks in early 1990s brought many new people into the banking sector through better services. That is a possibility in the insurance sector today. We need our new generation insurers and I do think the insuretech will lead there.
Specifically today, I present one area we need a pioneering AI-driven insuretech in Nigeria: cybersecurity insurance. I see three keys areas:
- Private Sector: No one is insuring most of our businesses in the domain of cybersecurity today. The foreign players will not do so because they do not have much presence locally. With largely no product in the market, an insuretech can create a new sector, even without any disruption, in the cybersecurity sub-policy category. I also do think that in near future, banks may be asked to carry cybersecurity and data protection coverage as part of the Securities & Exchange Commission regulation. Banks do transport customer data just as oil tankers which move oil; the oil tankers carry insurance in case bad things happen. To get that insurance, the banks will have to secure their networks and stay up-to-date on the latest data protection systems. This makes sense as the Central Bank of Nigeria has noted that Nigerian financial sector has lost more than $470 million to cyber-related frauds.
- Government: Though the opportunity may be limited in the public, I do believe that forward-looking institutions like Corporate Affairs Commission, Securities & Exchange Commission and Nigerian Stock Exchange may be in play here, if there is a credible product.
- Credit Bureaus: I have noted some key points before Nigeria ratifies many elements of its credit bureau system in our fledgling credit system. Traditionally, looking at what is happening in U.S., credit bureaus do not really care about customer data. They profit by selling data which banks and other sources send to them. So, irrespective of their actions, their customers (the banks, mortgage lender, etc) will always come to them. The customers whose data are sold are never in the picture. That is very bad and needs to change. I expect the Nigerian credit bureaus to under-invest in cybersecurity and broad data protection: naturally, people want the easier path. Insuretech can provide insurance products for the credit bureaus to take insurance. The regulator, NAICOM, will mandate that for all Nigerian insurers. For the credit bureaus to get the insurance coverage, the insuretech will then require that they harden their networks and systems with up-to-date security systems. Through that, there will be an alignment on what the bureau does and what the overall interests of the customers will be.
The insurance industry is still on stasis. It needs the innovation capabilities of agile insurance technology companies. I do believe that we need to have founders who can lobby NAICOM to open up the industry by giving license to carefully vetted insuretech firms. I am expecting a truly online-only insurance company in Nigeria that is asset-light, but very strong on the key ratios because it will save money on buildings and other old artifacts of the industry. Insuretech can help to unlock insurance value in Nigeria and grow the sector. But that can only happen if the entrepreneurs step up and NAICOM blesses them. Government must find a way to enable insuretech participation besides any policy it is engineering to reshape the industry.