Analysts see boost for economy, consumers in microinsurance 

• Offers window to achieve financial inclusion
• Can benefit tens of millions of Nigerians 

Despite the challenges facing the Nigerian insurance market, microinsurance offers unique and exciting opportunities for both insurers and consumers, as well as the general economy, with its  potential to reach millions of people excluded from traditional insurance products and other financial windows of the economy, multiple industry analysts have told Business a.m.

The Nigerian market is rapidly expanding, with innovative new products and distribution models. For insurers, this represents an untapped market with significant growth potential, while for consumers, it offers a way to access much-needed protection from financial hardship.

Microinsurance is a type of insurance designed for people with low incomes. It has smaller premiums and payouts than traditional insurance, and focuses on specific risks faced by low-income people. These include health expenses, loss of income due to disasters, and property damage. Microinsurance is typically provided by specialised providers who focus on serving this market.

The National Insurance Commission (NAICOM), defines microinsurance as insurance that is accessible to low-income individuals, provided by licensed institutions, run according to accepted insurance principles, and funded by premiums.

Microinsurance products are designed to meet the needs of low-income individuals and families. They cover smaller assets and offer compensation for illness, injury, and death. The benefits of microinsurance include:

• Providing a safety net for low-income households in times of crisis, such as natural disasters or crop failure.
• Offering financial protection for low-income people who would not otherwise be able to afford traditional insurance policies.
• Reducing poverty and promoting economic development by providing a safety net for people who are vulnerable to income shocks

Some specific examples of microinsurance policies include:

• Microhealth insurance: This type of insurance covers basic healthcare expenses, such as doctor’s visits, medications, and hospital stays.
• Microlife insurance: This type of insurance provides a death benefit to the insured person’s family in the event of their death.
• Micro disability insurance: This type of insurance provides a payout if the insured person becomes disabled and is unable to work.
• Micro property insurance: This type of insurance provides coverage for damage to property, such as a home or business. It can be especially important for people who live in areas that are prone to natural disasters, such as floods.
• Micro agriculture insurance: This type of insurance provides coverage for the loss of crops or livestock due to natural disasters or disease.

The microinsurance market in Nigeria is relatively small, but it is expanding rapidly, with a number of key players, including local insurance companies, microfinance institutions, and non-profit organisations. NAICOM recognises the significant benefits of microinsurance, including its potential to reduce poverty and promote social development.

According to a study conducted by the commission, lack of access to insurance products and lack of knowledge about insurance are the main reasons for the low uptake of insurance in Nigeria. The study found that many Nigerians do not understand how insurance works and what it can do for them. 

Given the findings of the study, NAICOM believes that micro insurance can play a crucial role in educating Nigerians about insurance, especially those living in rural areas. 

The NAICOM microinsurance guidelines state that micro insurance products must be simple to understand, with clear terms and conditions. They must be accessible and designed to meet the needs of the target market. They should also be easy to buy and sell, with efficient distribution channels for both insurers and policyholders. These guidelines aim to ensure that micro insurance products are suitable for the people they are intended to serve.

NAICOM noted that the main objectives of its micro insurance guidelines are to establish minimum standards for micro insurance operators and service providers, protect consumers, and ensure that micro insurance business is conducted in a fair and transparent manner. 

NAICOM and the insurance industry believe that through the proper implementation of the micro insurance guidelines, they will be successful in their efforts to increase insurance penetration in Nigeria through micro insurance. This can be achieved by distributing micro insurance products through a variety of channels, such as mobile phones, community-based organisations, and microfinance institutions. 

So far, the  licensed  micro insurance firms in Nigeria  are Goxi Microinsurance, CHI Microinsurance, Cassava Microinsurance, Shagamu Microinsurance, Credit Microinsurance and Prudent Choice Microinsurance and NoorTakaful  Insurance.

Yinka Oyekunle, chief executive officer, Lifeguard Microinsurance Limited, noted that micro insurance is needed by the underserved population in Nigeria, who are often overlooked by conventional insurance operators. She explained that Lifeguard’s target market includes small and medium businesses, educational institutions, artisans, trade unions, clubs, societies, and others who need financial protection due to their limited economic strength. She emphasised the importance of micro insurance as a way to provide these groups with the security they need.

According to Yemi Soladoye, managing director of Risk Guard Africa Insurance Brokers, micro insurance is designed for people who need it most, including farmers, artisans, market women, and low-income individuals in rural, semi-urban, and urban areas. He explained that these groups could be divided into two categories: those already using financial services, such as microfinance banks, and those who are not. 

He said in general, the low-income people all over the world are those who earn $4.0 per day and below and are further divided into two  groups: the active poor and the vulnerable poor. Soladoye explained that the active poor  are those earning between $2.0 and $4.0 per day while the vulnerable poor are those earning below $2.0 per day.  

According to him, since insurance is to satisfy the security needs of human beings and those earning below $2.0 per day are still struggling to satisfy the physiological needs of food, shelter and clothing, insurance for them could only be provided through government aid/support.

Soladoye noted that the reasons that low-income people in Nigeria enter into poverty include poor health, accidents, drought, fire disasters, social expenses, and high-interest private debts. These, he explained, are exactly the kinds of risks that micro insurance can help to protect against.

Despite the efforts of NAICOM and other insurance organisations to promote micro insurance, analysts say there are a number of challenges that need to be addressed in order to realise the full potential of microinsurance in Nigeria. 

First, there is a lack of awareness and understanding of insurance among consumers, which can make it difficult for them to see the value of micro insurance. In addition, there is a lack of data on low-income people, which makes it difficult to design appropriate products and services. Furthermore, there are limited channels for delivering microinsurance, and it can be difficult to reach rural and remote areas. Finally, there are regulatory challenges, as microinsurance is still a new and relatively untested concept in Nigeria.

The lack of regulation for micro insurance is a significant challenge, and the sale of insurance through informal channels can make it difficult to ensure that consumers are informed and protected. Additionally, there are challenges related to pricing and underwriting, as the limited financial resources of potential customers can make it difficult to create products that are both accessible and affordable. These challenges highlight the need for innovative solutions to promote the development of the microinsurance market in Nigeria.

To address these challenges, Peter Irene, former managing director of International Energy Insurance PLC noted that there is need  for greater consumer education and awareness about the benefits of micro insurance, adding that this can be achieved through public education campaigns, as well as training for insurance agents and brokers.

He pointed out that there is a need for greater regulation of the micro insurance market, to ensure that products are properly designed and meet the needs of the consumers, adding that innovative distribution channels should be explored to reach more consumers in a cost-effective way.

Irene also emphasised that digital technology should be adopted to simplify the process of buying and using micro insurance products. He pointed out that the use of mobile apps, and other digital tools to provide information about products, track claims, and provide customer support.

“We have a problem with technology. I use PalmPay as one of my banks, the sheer facilities in the application are marvellous. But there are no apps in the insurance industry like that. There was a time I approached PalmPay to include insurance in the application, but I am yet to hear from them. The industry needs to come together and develop apps that are as versatile as that of the banks,’’ Irene said.

The insurance expert added that a multi-pronged approach is needed  to address the challenges facing the micro insurance market in Nigeria.