Insurance penetration in Nigeria and the Canadian example

Insurance practitioners in Nigeria have always been firm and uniform on the need to increase insurance penetration in Nigeria. But there are divergent views on whether or not the strict enforcement of the compulsory insurances should be a major tool to increase the penetration. A school of thought feels that relying on compulsion to increase insurance penetration is a lazy man’s approach to growing a business.

Another school feels opportunities abound in the emerging markets of telecoms, agriculture, infotech and others and practitioners only need to leave their comfort zone, think out of the box and grow the insurance industry. Yet another group feels that even if the insurances are compulsory, there need not be compulsion before people buy the compulsory insurances. They say practitioners need to think out of the box and make potential policyholders realise the need to have these compulsory insurances.

I agree partly or totally with all the schools of thought. But I want us to look at the following. One, I listened to the Chief Executive Officer of the Insurance Brokers Association of Canada, Mr. Peter Braid, during the recently held virtual Mid-Year Workshop of the Mrs. Buki Ifemade-led Lagos Area Committee of the Nigerian Council of Registered Insurance Brokers. He said that motor insurance and mortgage insurance, two compulsory insurances, are responsible for over 60 per cent of insurance penetration in Canada. This points to the fact that compulsory insurances do help to increase insurance penetration.

Two, coming back home, pension fund was in billions until 2004 when pension was in the hands of insurance companies. Once the PenCom Act was enacted in 2004 and government gave it some traction (you cannot register with the Bureau of Public Procurement or bid for government jobs without a Pencom certificate), pension funds grew exponentially. Currently the Pension funds stand at over N10 trillion. That is roughly Nigeria’s national budget for 2020. Without government backing, this would not have been possible. There is no doubt that the insurance sector needs government support in enforcing compulsory insurances and growing insurance penetration.

Three, those who say practitioners should think out of the box and come up with ways to get people to embrace insurance without being compelled have a point. If for instance, I approach a home owner who is a retiree and ask, “Oga, what is the value of this your beautiful home?” He gives a figure, say N30 million and I go further, “Is it insured?” He responds in the negative and I go further, “If the house is destroyed by fire, do you have N30 million to rebuild it?” He will probably respond, “Where do you want an old retiree to get that kind of money from?” Then I will advise, “Oga, with between N125,000 and N200,000, you can insure the building against fire plus/minus special perils.” He would probably have a rethink, especially with follow-ups.

In the above case, the man does the insurance for his own benefit. That is not the same for all the compulsory insurances: motor (third party) insurance, occupiers’ liability insurance, builders’ liability insurance, healthcare professionals’ indemnity and employees’ group life insurance. The primary reason for making these insurances compulsory is not to increase insurance penetrations. These insurances are taken by policyholders for the benefit of third parties (bodily injuries, death and property damage). So government cannot leave the job of enforcement to the insurance industry alone. It has to get involved. The constitution of the Federal Republic of Nigeria makes it incumbent on government to guarantee the safety of lives and properties of Nigerians. In addition, there are laws governing all the compulsory insurances. Who prosecutes offenders when these laws are broken? Certainly not insurance practitioners. 

Insurance penetration and growth in premium are just accidental to the enforcement of these laws, not that they are primarily meant to benefit the insurance industry. But since the industry is going to be a major beneficiary, it has to come up with ways to guide government on how these compulsory insurances can be implemented (let me avoid the word “enforced” because of the presence of “force” there).

The insurance industry has been interfacing with the Nigerian government, but the efforts are apparently not enough. A lot more needs to be done to get government on the side of the people as far as compulsory insurances are concerned. The industry will naturally get its reward when this happens. Interfacing with government is a global phenomenon and the right way to go. Braid said this much when he noted that IBAC engages government from the local to the national levels. Right now, there are millions of fake motor insurance certificates flying around and many of them originate from local governments and state government licensing offices. Just imagine the gains if the insurance industry were able to interface with state and local governments to substantially reduce incidents of fake motor insurance?  This makes Braid’s advice a clear and present issue.