Most Nigerian insurance companies have websites. And some have small digital stores to make it easier for customers to pay premium. Apart from these two efforts, there is nothing else, on average, at the consumer side, in terms of new internet-based technologies you can see in the industry.
Sure, they have adopted information technology which has delivered productivity gains in the industry. That has also brought good returns to the owners and investors in the industry. The same thing happened in the banking sector where productivity unleashed unprecedented value creation by the new generation banks.
This ICT worked in the Nigerian banking sector. It brought into existence a new generation of banking institutions, about thirty years ago. About three decades ago, some Nigerian entrepreneurs saw opportunities that they could use better service delivery, anchored on technology, to redesign the structure of Nigeria’s banking industry.
The Nigerian insurance industry is largely on stasis. Remove the automobile insurance which people pay just to make sure the Police does not detain the car, every other product is not that popular. Customers that pay for the automobile insurance never really expect to call the insurer when a problem arises. The service quality is extremely poor that no one gets any decent value. They simply tax us with the premium paid because that is what the law of the land says: we must have insurance to drive cars, even if the insurance product has minimal value.
In 2015, according to the Nigerian Insurers Association (NIA), the volume of business underwritten by the insurance industry reached N350 billion ($1 billion), against N294 billion in 2014. This represents an increase of about 19 per cent. The industry remains very small and will need to grow. At $1 billion premium, it is less than 0.40% of the GDP of Nigeria. That is troubling.
The Nigerian Insurance Industry
The Nigerian insurance market is a paltry $1 billion (by premium sold) and that is for a country with more than 180 million people. (By comparison, the global market size is $4.55 trillion.) Over the years, Nigerian insurers have been unable to expand this market owing to lack of innovation.
South Africa accounts for almost 80 per cent of all premiums in sub-Saharan Africa and the country has an insurance penetration rate — the total value of insurance premiums as a proportion of GDP — of about 13 per cent, well above the developed world average. Of the rest, Kenya is among the most advanced, with a penetration rate of 3 per cent. Nigeria’s, in comparison, is about 0.4 per cent, even though it is Africa’s most populous.
The Nigerian Insurance Industry includes the following sub-sectors: Composite, Non-life, Life and Reinsurance operators. Over the last five years, the Nigerian Insurance Industry has grown at a compound annual growth rate (CAGR) of 11%, buoyed by increased capitalization as well as the introduction of policies aimed at promoting the local market.
Nonetheless, the industry remains challenged with low apathy from the Nigerian populace and weak policy enforcement practices, resulting in a low penetration ratio. These challenges however present enormous opportunities when benchmarked with other African countries especially South Africa. The industry has room to grow, if it can innovate.
The Internet Problem
By not getting into the internet, the insurance industry will not have the same level of challenge: the expanded distribution channel which has caused major challenges on media, airlines, education, banking, and other sectors.
While ICT provided unprecedented productivity in the Nigerian banking sector, Internet is seriously “destroying” value. This is a “problem”. ICT made them, Internet could destroy some of them. Internet is bringing the construct of creative destruction in the Nigerian banking sector where values are destroyed and new opportunities unlocked. But those new opportunities are not going to be, exclusively, within the controls of the banks.
But they are wrong – the future of commerce will be Internet-based and the earlier the insurance sector begins to move into that domain, the better. They may avoid the competition from InsureTech, insurance technology startups, but the future cannot be avoided. We need to see innovations, in the insurance industry, just as the banking sector is demonstrating on the web. I am very sure that the industry is not avoiding Internet in order to preserve value since Internet brings competition and can destroy value (yes, it does also create value, but the incumbents can see value dislocation). Rather, they are not on the Internet because they do not innovate. They like to blame the customers for not buying insurance, even though they have not put forward a compelling reason, through product innovation, for people to do so. They should be thankful that customers even buy insurance, primarily automobile insurance, because the law requires so.
Internet can help them innovate and evolve product vision that can meet the needs of Nigerians. But for that to happen, the players must show interest on the possibilities of the internet.
The insurance industry in Nigeria has used IT for productivity gains. Now is the time for the next level of innovation which is taking the insurance industry to the web. What they have been unable to do for decades – industry penetration acceleration – can happen if they digitize their products and make it possible for Nigerian entrepreneurs to participate via InsureTech. Should that happen, new products will evolve, and could actually deliver the aha moment that will make Nigerians begin to like buying insurance. The time is now: Nigeria needs a 21st century insurance industry.