Sector striving towards financial inclusion

Over the years, the insurance sector has been redefining its processes to prepare it to play its expected role in Nigeria’s economic development. But it has not been able to achieve financial inclusion like its counterparts in the banking and pensions sectors. CLEMENT NWOJI examines the inhibiting factors.

The level of insurance practice and financial inclusion in the sector in Nigeria is beclouded with timidity, apathy and exclusion, despite the long years of professionalism and the potential protection it offers against risks and damages arising from unforeseen circumstances and disasters.

Since almost 95 years when the Lagos office of the then London based, Royal Exchange Assurance Company was first established in Nigeria, in 1921, many other insurance companies are now in existence.

But insurance penetration and the sector’s contributions to nation’s Gross Domestic Products (GDP) have always been below expectations. This, contrasts with its counterpart in the banking sub-sector, which immense contributions to the nation’s GDP cannot be overlooked. Although both professions, insurance and banking in Nigeria dates back to the colonial era, but the banking sector which local activity started in 1892 with then
African Banking Corporation and British West Africa, now First Bank of Nigeria, has achieved higher financial inclusion than the insurance sector.

Statistics by the Central Bank of Nigeria (CBN) indicates that through its implementation of Financial Inclusion Strategy, the rate of access to financial services has improved and is in fact, targeting to achieve at least 80 per cent financial inclusiveness. While this can be said of the banking sector, it is not so with insurance because most Nigerians do not have access to insurances services.

A number of factors had been identified as inhibiting the growth and penetration of insurance, which include fraudulent practices, lack of viable and attractive products, lack of awareness of the benefits of insurance and conservative attitudes of the practitioners. Other limiting factors operators reluctance to expand their office branches to local communities other than just the city centres, inability to comprehensively fulfil their obligations to the insured in the event of losses; lack of adequate regulations, funding and capital adequacy, corporate governance issues among other setbacks.

There is also a high degree of apathy and fear arising from lack of confidence and trust in the practitioners. This is mainly attributed to the failure of insurers to abide by the contractual agreements between them and the insured in event of an insured risk.

Under the present economic recession, the consequence of low insurance penetration and financial inclusion in the sector is grave. In the first place, the expected mitigation against risks is non-existent and individuals are exposed to unforeseen dangers arising from natural
disasters such as fire outbreaks, collapse of buildings or structures, vehicle accidents, and other incidences beyond human prevention. Further, the premiums which ought to generate capital to the insurers are equally lost and the insurers’ ability to plough back its profits back to the economy via through investments in viable projects, and thus contribute to GDP growth is diminished.

Worried by some of the issues hindering insurance expansion and contribution to national development, the Commissioner for Insurance, Mohammed Kari, noted that excesses in the sector tended to project the profession in bad light, thereby generating public apathy.

Kari, who spoke at a recent 2016 insurance professionals’ forum organised by Chartered Insurance Institute of Nigeria (CIIN), urged the institute to strict enforce its codes and bylaws just as well as impose sanctions on any erring practitioner when necessary.

He said: “The employed professional can likewise be checked by holding his employer responsible for his action. The institute’s codes and our regulatory guidelines already provides for most of that. I am calling on the institute to bite the bullet and work with us to rid the profession of the remaining bad eggs where ever and whoever they may be. The case of the bad professional who is at the top is more complex. We have found executive recklessness and/or timidity at the very top of the executive ladder in some companies; some executives have feigned ignorance when asked to give account of their companies’ misconducts.

“The code of good Corporate Governance plays an important role in the success of any institution. We have observed a correlation between technically and financially deficient Insurance companies with corporate governance problems. We see this as negligence on the part of the Board either in performing its oversight functions and/or the Board itself actively involved in unprofessional practices.”

He said further: “The Commission, like all concerned, recognises the need to increase the penetration of insurance services in Nigeria through the creation of alternative distribution channels and has gone far on the preliminary work and drafted guidelines in this direction. We acknowledge the market and the players could meet challenges as we seek to establish these channels, we, however, believe that in the new spirit of consultation, we shall scale those hurdles. This preliminary works being done includes the review of existing intermediation structures; this would also enhance partnership with other  sectors of the economy.”

He urged the practitioners to adhere strictly to the tenets of the profession in the course of their business transactions, recalling that
failure to do so in the past had caused the industry so much reputational injury.

Previous efforts targeted at redefining the insurance sector included the launch of the Market Development and Restructuring Initiative (MDRI), which is a medium term plan of National Insurance Commission (NAICOM) in 2009. The objectives include increasing insurance penetration in the country and transforming the insurance industry premium from N269 billion premiums to N1 trillion in 2012. This was achieved through the enforcement of compulsory five insurances, creation of 50,000 jobs, raising insurance industry contribution to GDP from 0.6 per cent to three per cent among other targets. The compulsory insurances were set with the objective of providing protection to third parties and the general public.

However, the industry is yet to achieve all the targeted objectives as the annual premium still hovered around N400 billion. Indications from NAICOM showed that the Commission has moved the date of actualising the objectives to 2017, even as it plans to re-launch the MDRI at a later date. Nevertheless, it has achieved appreciable patronage of insurance products, especially in the Third party vehicle and motorbike insurances.

The current under performance of the insurance industry in Nigeria also attracted the attention of the Minister of Finance, Mrs. Kemi Adeosun at
recent National Insurance Conference in Abuja.

She said that a developed and active insurance market would bring about increase in GDP, accumulation of long-term funds for infrastructural financing, job creation, an improved standard of living as well as attraction of foreign investment into the country.

However, she regretted that the sector is not playing the expected role mainly due to under capitalisation. She said: “There is a need to immediately address the decline in the Nigerian insurance industry, as it is lagging behind global and African peers. Despite being the second largest economy in Africa, the Nigerian insurance industry remains largely underdeveloped.