Nigerians are known for their entrepreneurial spirit and willingness to invest in a wide range of products and services. However, insurance remains a less popular choice.
This raises the question: why do Nigerians shy away from insurance when it offers protection against financial loss? In essence, insurance is a risk-transfer mechanism where, (for an affordable fee) a company (insurer) agrees to compensate the policyholder (insured) for financial losses resulting from specific events like accidents, illness, or property damage.
Globally, insurance has been a safety net for many, however, Nigeria presents a drastic contrast. Only 13.4% (CIIN) of its population is insured, equating to approximately 13.4 million individuals out of a total adult population of approximately 100 million.
This low penetration is underscored by a 2018 survey by Chartered Insurance Institute of Nigeria (CIIN), indicating that an 86.6 million adults do not have any form of insurance coverage. Further, Agusto & Co.'s 2022 report paints a grimmer picture, revealing that only 0.5% of Nigerians have insurance. These figures emphasize the urgent need to examine the factors driving this low adoption of insurance among Nigerians. We explore the different influencing factors below:
Complete Dependency on Divine Protection
Nigerians are known for deep religious faith. This devoutness can influence decisions, including those related to insurance and financial planning.
The rainy season offers an illustration of this influence: two neighbours living side by side, Neighbour A is known for their unwavering faith and generosity, while Neighbour B is a practical individual who is always prepared.
When a severe rainstorm threatens their homes, Neighbour A turns to prayer, seeking divine protection. In contrast, Neighbour B promptly files a claim with their insurance company. Days later, repair workers are already on Neighbour B's roof, while Neighbour A is still dealing with the aftermath of the storm.
This contrast highlights the different approaches to risk management.
While Neighbour A's faith is commendable, it does not provide immediate protection against property damage. Neighbour B's insurance, though a financial investment, has proven to be a valuable safety net.
Life is unpredictable. Knowledge of the future is limited- decision-making is inherently risky. With insurance you can confidently mitigate potential losses. While religious faith provides spiritual security, insurance offers a tangible protection against financial hardship.
Lack of faith in insurance companies to pay claim
Another factor hindering insurance uptake in Nigeria is the public's perception of slow claim settlements by insurance companies. While past issues existed due to inadequate capital and other factors, the National Insurance Commission (NAICOM) has taken steps to address them.
In 2003, the National Assembly enacted the Insurance Act 2003, introducing new regulations and requiring increased capital bases for insurance companies. This minimum capital requirement varied depending on the type of insurance offered, ranging from ₦150 million for life insurance to ₦350 million for composite and re-insurance companies.
NAICOM further tightened regulations in June 2005, aiming to improve the industry's financial strength and risk-bearing capacity across sectors. This ultimately led to industry consolidation in 2007.
Subsequently, capital base requirements were significantly raised, reaching ₦3 billion for life insurance and ₦5 billion for general business. Notably, some companies have already bolstered their capital to over ₦10 billion in anticipation of a proposed tier-based recapitalization. For instance, Coronation Insurance' Gross Written Premium (GWP) for 2023 stood at ₦18,751,063,000.00 making it one of the leading insurance companies in Nigeria to place your risk. More so, claims paid as of 2022 was ₦3,107,665,578.81 and ₦3,715,278,840.96 in 2023. These figures attest to the fact that insurance companies do pay claims promptly.
Economic consideration and price of insurance
Many Nigerians prioritize immediate needs and spending over long-term financial planning, including insurance. This approach can be attributed to several factors. One reason might be a limited savings culture, often due to low income. As a result, Nigerians often rely on faith to cope with unforeseen circumstances.
However, the rise of financial inclusion initiatives is changing the landscape. Retail and micro-insurance products are now becoming more accessible to Nigerians in the informal sector and those with limited income. These products offer similar benefits to traditional insurance plans but are tailored to their specific needs and budgets. Example of affordable insurance product is the E-term insurance offered by Coronation that covers the insured against permanent disability, critical illness and death and the premium payable is just ₦500.00 per month or ₦5,000.00, one- off payment for a year.
Ignorance
Ignorance is an even greater barrier. When an individual lacks knowledge, it can be difficult to internalize a concept and take action based on it. This challenge is common in the Nigerian public's perception of insurance.
Many Nigerians, despite experiencing losses, struggle to grasp the benefits insurance offer. It can provide much-needed stability in the face of unexpected events, helping individuals bounce back from financial shocks. Overcoming this lack of awareness requires continuous public engagement and educational efforts.
Lack of knowledge about the availability of insurance products
Knowledge of insurance goes beyond basic concepts. Many Nigerians lack awareness of specific products that could address their unique needs. For example, some may be familiar with third-party motor insurance but unaware of a third-party, fire & theft option. This more robost and affordable policy offers protection against fire and theft for the insured, even if a comprehensive plan may be out of budget.
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Insurance companies can bridge this knowledge gap by actively promoting a wider range of products relevant to the public need. Take business interruption insurance, for instance. This lesser-known product can be invaluable to entrepreneurs, providing protection against lost profits in case of business disruptions.
Process involved in buying insurance
A complex insurance buying process and difficult-to-understand policy are often cited by many Nigerians as deterrents to purchasing insurance. Faster turnaround times for receiving policy documents, both upon onboarding and during claims processing, would be a welcome improvement.
Summarily, these are some of the factors contributing to low adoption of insurance in Nigeria. The industry is, however, actively working to address these concerns. Service delivery has improved significantly, as evidenced by the steady rise of industry Gross Written Premium (GWP) which reached ₦1 trillion at the end of 2023, marking a 27% increase from the previous year (NAICOM). Notwithstanding, there is room for growth.
Partner with Coronation Insurance, talk to a licensed insurance agent today.
Learn about the different insurance options available and how they can benefit you.
Website: www.coronation.ng
Email: [email protected]
Phone No: 02-012774500 | 02-012774566 | 02-012774577
