Performing within the one percent space

Many business analysts have continued to see the dim light of the insurance industry in Nigeria and often wonder why it is underperforming when compared to other sectors or climes, especially looking at the contribution to our Gross Domestic Product (GDP).

While it may be easy to allude to the negative impact of the COVID-19 pandemic on the global and national economies and all sectors, I will like to share my perspectives on how the insurance industry has been performing despite reported contraction during the second quarter of 2020 as reported by the National Bureau of Statistics (NBS) recently.

Inarguably, the role of insurance in the economy can be much like that of the defensive midfielder in a football game, where he ensures that his team does not lose the ball to the opposing team while at the same time moving forward, when necessary, to drop passes that will enable the strikers do their job; like we say, it is a yeoman’s job. The defensive midfielders hardly get the accolades and global recognition yet their contributions are usually discussed after the celebrations.

As we review the NBS Second Quarter Report on our Gross Domestic Product, we will do better to consider the performance of the insurance sector as that of the defensive midfielder in the football team to understand what happened, why it happened and how we can address the issues better while we still have some time before the end of the year.

Firstly, the insurance sector in Nigeria has been performing within a space that has not quite expanded over the decades despite the growth, contraction or recession that the national economy has experienced. This is attributable to several factors including weak governance, poor customer service and slow market development, which are being addressed by the regulator, National Insurance Commission (NAICOM) through ongoing efforts to recapitalize the insurers, adopt digitization and deepen penetration.

Like that defensive midfielder, the insurance sector, considers what virtually every other player is doing and responds, sometimes initiates moves, however it is best appreciated when the responses, by way of prompt claims settlement ensures businesses continue with little or no interruption, even during periods like we have had since the beginning of the year. Indeed, many insurers after considering the ravaging arrival of COVID-19 decided, during the second quarter of the year, to support the fight against the pandemic by contributing to the Federal Government Fund Raising drive and giving incentives and discounts to their policyholders whilst still honouring claims that were due.

It should therefore not be surprising that the insurance sector experienced contraction in Q2 2020 as reported by NBS. Ordinarily, the insurance sector receives over 50% of its income in January when most businesses renew their insurance policies and this trend has remained over the years; just as there tends to be more claims payouts in the second quarter of every year.

Notwithstanding, the biggest challenge the insurance sector needs to address is getting more Nigerians to buy insurance policies and the solution lies in prompt payment of claims to individual policyholders as much as it is done in the case of businesses. It is understandable that since corporate businesses account for over 70% of the Gross Written Premium of the insurance sector then they get the chunk of the claims payouts as well, however more businesses exist in the informal sector, often called retail, which contributes less than 15% while the Federal and States Governments, despite being the biggest spender in the economy, contribute a relatively low 15% to the sector’s income.

Based on 2018 results, Lagos State accounted for 83.6% of the Gross Written Premium, FCT 6.6%, and Rivers State 2.4%, while the remaining States altogether accounted for 7.4%; and this picture has not quite changed. Taxes amounting to over N36 billion were paid by insurance companies while claims payouts of over N200 billion were recorded for same period.

Beyond the general expectations that the insurance sector players should become more innovative in engaging Nigerians and bring insurance education to every household, it should be of more interest to the Federal Government, on one hand, that the insurance sector could be used to achieve more of its key objectives of fiscal discipline and revenue security, and the citizens, on the other hand, who now have to live with the pandemic and its associated risks.

Lately, there have been increased calls and advice that the insurance sector launches its digital agenda and engage Insurtech start-ups to enhance access to insurance and promote insurance inclusion and NAICOM has responded by indicating that it will soon expose the Draft Guidelines for Regulatory Sandbox that will enable Nigerians with ideas on how to improve delivery of insurance services have the opportunity to test them.

In my view, the insurance industry in Nigeria may have lost the chance of significant acceptance by Nigerians over the years but has the best chance in this new decade to leapfrog by simply responding positively to the complaints of policyholders that will share their good experiences and encourage others to subscribe.

An improved insurance experience can happen for many Nigerians, especially young entrepreneurs who have digital solutions to our age-long challenges. It is time to change the question from “How do we sell?” to “How do we make them buy?!