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.
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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.
All Together
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.
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In as much as I want to cast blames on the Insurance Operators for their lack of innovation and adoption of the internet and ICT for growth, I also would like to blame the National Insurance Commission (NAICOM) for their lack of policy and enabling laws to boost the insurance industry.
I believe that there should be a law mandating building owners to insure their buildings and properties inside such buildings. Buildings such as offices and factories are even more important. The decision to get insurance cover or not should not be left to ordinary citizens. Both of know that 99% of Nigerians won’t get insurance for their cars not to mention buildings if they had the choice.
An enabling law will go a long way to revamp the insurance sector and lead to thousands of jobs for our citizens.
Good point. I do think the laws are already in the books. The challenge is enforcement.. If government does well and funds the National ID Number, most things can be easily tracked and enforced. Even if you want to enforce home insurance, how can you do that? You may need to employ legions to do that. But with NIN, when a house is tied to someone and that house does not have insurance, the system can detect that.
Fantastic piece! I am quite puzzled at the current level at which our insurance industry is in comparison to the banking sector. I work with an insurance firm and everyday I see opportunities for innovation, expansion of market share and all-round profitability for insurance firms that go untapped. Tomorrow’s customer is on the Internet and tech savvy and so this is the direction their businesses should move.
Honestly, there is a problem not just with the individual companies but every stakeholder especially the regulator who should be the one to mandate upgrades, improvement. All the know best to do is fine erring companies millions of naira.
Things have to change. The companies hide under the umbrella of compulsory insurance to get “free” premium from customers because these customers don’t even come for claim!
Customers are ignorant of the fact that their insurer has to be held responsible when there is a claim. Some others don’t believe or trust the industry and so I think there is work to be done in terms of improving the image of insurance in the country.
Insurance companies exist to pay claims period. Sadly this is not the angle insurance companies operate from. Next time you watch dstv, watch out for an advert from South Africa’s Outsurance and you tell me if you would not want an insurance. Look out for the message they are trying to communicate.
Brilliantly noted Damola. Recall that many decades ago, the banks had the same issue. They evolved, using technology to improve services. Today, our banks are some of the highest respected brands in Nigeria. Insurance has to see how InsureTech can help the sector.
@damolaoloko, nice piece. Should you be interested in pursuing opportunities for innovation within the insurance industry, come innovate with us (my team is setting up an insurance technology startup focused on insurance digitalization and innovative insurance inclusion). You can find me on LinkedIn via http://www.LinkedIn.com/in/oluwaseunayegbusi or visit http://www.coverdor.com
Great perspective Ndubusi. In my assessment of the insurance industry in Nigeria, there seems to be a “connivance” between the operators and regulators not to do what we know should be done to transform the industry, for example, communicating direct benefits of Third Party Motor Insurance: a line of N1,000,000 (Third Party Property Damage) to repair/replace the property of the affected third party and medical attention for any bodily injuries resulting from the accident. At N5,000 a year for individual policies, you can imagine what could amount from 5-10m personal vehicles. Problem is, the source of issuance of insurance policies is not controlled by the National Insurance Commission and left for touts to enjoy free runs. Only the customers can change the story by demanding for what they know is possible! And that’s why I am involved with Insurance September, a developing innovative insurance discourse that gives policyholders the opportunity to share more knowledge and subsequently engage the insurance industry in a way that will improve their experiences. The inaugural event holds on Friday September 29, 2017 at City Mall, Onikan, Lagos. Be there or send someone to attend!
Brilliant Ekerete. You nailed it – very exciting project indeed. Could you share more details via email on this page https://www.tekedia.com/advertise/. One of my team members could make it. Or if you have a website, feel free to post here.I personally want to be up to date on the development. We help many firms in the sector on strategy.