Nnamdi Duru writes on the need to entrench micro-insurance, the process of delivering low-cost insurance that covers the lives, health and property of the poor and provides protection against natural disasters in the country

Faced with rising operational and claim costs, insurance operators and professionals in the country have started exploring ways of bringing down their costs to shore up the profitability of insurance business.

Also, having realised the underlying fallacies behind the supremacy of big premium wholesale insurance and government businesses, operators are now looking for different avenues of increasing their profitability without necessarily broadening their revenue base.

The above scenario has propelled a shifted in insurance operators' focus to retail insurance as a viable alternative and as such they are collaborating with relevant operators with a view to reaching the ultimate consumers with their products and services.

Bancassurance, an arrangement that enables insurance companies make their products available to the grassroots inside banking halls, was the order of the day before the latest reversal of universal banking.

Micro-insurance has now gained ground across the African market in recent times, but in Nigeria, operators are still toying with the idea because of the peculiarities of the Nigerian economy and people.

Some of the challenges in this regard border on wrong definition and interpretation of the word, micro-insurance, product and distribution channels as well as the need for government to support the industry to deliver in this regard.

About Micro-insurance

Team Leader of the International Labour Organisation (ILO) Micro-insurance Innovation Facility, Mr. Craig Churchill, in his article, 'Going Downmarket: African insurers and the low-income market' helped to resolve what used to be the greatest challenge facing insurance operators regarding micro-insurance, wrong definition.

"Micro-insurance is not just a scaled down version of regular insurance... the product and processes need to be completely reengineered to meet the characteristics and preferences of the low-income market.

"It is not a specific product or product line. It is also not limited to a specific provider type. Micro-insurance is the provision of cover to a specific market segment, i.e. low income persons", he said.

He resolved the crisis of operators particularly in Nigeria, believing that the way to go about micro-insurance is to reduce the perils covered and sum insured by any particular product with a view to reducing the cost of insuring to accommodate low income earners.

Distribution Channels

Creating the right channels for distributing micro-insurance products is a major challenge militating against the growth of micro-insurance in Nigeria. As such operators should create new channels to deliver professional risk management services to the poor and low income earners across the continent.

There may have been no formal channels for reaching the target consumers of micro-insurance products, but the operators also need to make good use of GSM network for distributing the products.

Insurance operators across Africa recently resolved as follows: "We realise that distribution, premium collection and administration of micro-insurance products will require cost effectiveness and administration efficiencies. To this end, we shall partner with distribution enablers like mobile phone operators to secure high market penetration."

Other channels for reaching out to low income earners across the country include churches, mosques, schools, community and trade associations as well as traditional and community government organs.

Product Challenge

Micro-insurance product should be completely reengineered to meet the characteristics and preferences of the low-income market, advised Churchill.

According to him, for operators to excel in this new line of business, they have to completely re-engineer micro-insurance products to meet the characteristics and preferences of the low-income market.

The needs of the low income earners are in many ways dissimilar to that of the rich and affluent in the society. While the latter seek protection of their properties including houses, cars and overseas trips among other things, the former would require cover for their work tools, unemployment protection, sickness cover and burial insurance.

Having this in mind, scaling down perils covered by any existing products or pricing them down to the level of the low income earners would not serve any purpose since they were not originally designed with the target group in mind.

Therefore, operators should fund researches in the country, groups and societies with a view to determining their needs and how best to serve them.

Investors Challenge

Some of the operators identified the investors' penchant for recovering their investments quickly as one of the challenges that has not encouraged them to invest in growing the micro-insurance channels.

Summing up this challenge, the Deputy Managing Director of Industrial and General Insurance (IGI) Plc, Mr. Rotimi Fashola said "I think micro-insurance is the way to go but we all know that people that invest in companies expect quick returns and going to micro-insurance will not bring that anyway.

"Even though the law of large number is there but to provide the infrastructure requires the company deploying capital and allowing the capital to stay. Of course there are all other pressures here and there to make sure that we are able to bring in something quick to those who have invested," he added.

Trust Factor

In insurance, trust is very important and as such "utmost good faith" remains one of the pillars of insurance. The operators need to earn and sustain the trust of their target customers and other stakeholders to enable them remain in business. The question now is how would they do this?

"Make noise about claims payment, it is a big deal," an expert advised. He reasoned that since what caused distrust for insurance including failure to pay claims spreads from door to door, making noise about each claim settled by the operators would go a long way to reverse the negative image which the industry has earned over time.

Government Support

Sharing the Sudanese experience, the Assistant Managing Director of Underwriting-Sherikan Insurance and Reinsurance Company, Sudan, Mr. Omer Ahmed, said the economy would benefit from the attendant accumulation of huge micro-finance fund and expansion of the micro-finance infrastructure.

He also explained how the above work with the support of Sudanese government, saying it encouraged takaful and micro-insurance in the country by guaranteeing loans and credits to low income earners who were willing to buy insurance.

According to him, with the support of government who serves as guarantor for loans to this critical sector of the economy, finance organisations would be willing to extend credit to them and they would in turn buy insurance to further protect themselves and their wealth against unforeseen occurrences.

The Nigerian government is divesting from businesses and as such it may not start establishing micro-finance banks across the country. However, it could replicate what happens in Sudan by providing guarantees for loans and credit to low income earners. This is quite unlike subsidy for agricultural insurance.

Such guarantees, using the national identity card system as a proof of identity, would in addition to generating micro-insurance businesses, help the micro-finance sub-sector to grow geometrically.

Need for Micro-finance Institutions

The lesson from the African Insurance Organisation (AIO) conference and general assembly which took place in Sudan two months ago was that the growth of micro-finance institutions is a necessary condition for the growth of micro-insurance business anywhere in the world.

It is only the micro-finance institutions that could provide the small credit to small and medium income earners to grow their income and it also follows that when these people get credit from the finance institutions, micro-insurance service providers would now have to provide covers for such loans, including the lives and health of the creditors.

The micro-finance industry in the country is still not grown, so there is need for government and all stakeholders to help develop this critical sector is poverty is to be alleviated in the economy.

Operators could as well borrow a leave from Mutual Benefits Assurance Plc, a Nigerian composite insurer, which has gone ahead to acquire a Micro-finance outfit through which it serves its micro-insurance customers.

With N2 billion and N3 billion capital, insurance companies could team up and acquire micro-finance banks if setting up new ones would present some challenges and create enough micro-insurance businesses to their grow their portfolios respectively.

They could do this individually or a life insurers team up with a general insurer to acquire one so that every life business that springs from the micro-finance transactions would be insured by the life insurers while general risks of their customers would be underwritten by the general insurer.

The World Bank has also lent its voice in this regard, calling on the Nigerian government to develop the country's 'dormant' insurance industry in order to achieve its Financial System Stability (FSS) 2020 goals.

World Bank's Lead Economist, Mr. Ismail Radwan, in a report titled, 'Achieving Nigeria's Financial System Strategy 2020: Making Finance Work for Nigeria' stressed the need to strengthen reinsurance business in the country as well as improving transparency and cracking down on fake insurance companies as part of efforts to achieve the vision.

With the support of governments, the industry would be in a better position to deliver risks management services to the poor and down-trodden across the continent.

Micro-insurance service providers need to fashion out ways to handle emerging issues like the inability of the low income earners to complete the necessary documentations including acceptable identification, minimum premium for the cover and not having access to banking services.

For micro life assurance providers, the target customers may not be literate enough to read and understand the policy document, they may not have legal title to their ancestral homes or their next of kin cannot get a death certificate, they may also not be able to access medical facilities within a reasonable time and cost of medical examinations being higher than sum assured.