Microinsurance: 'Nigeria Has Capacity to Emerge Global Leader'

By John Okeke

MICHAEL McCord , an expert in micro-insurance business and the Founder of the Micro-Insurance Centre , a growing consulting firm specializing in research, advocacy and development of micro-insurance products that meet the needs of the poor, has said that Nigeria has a huge market that will leverage on micro-insurance business in the country.

McCord in an interview with journalists, affirmed that Nigeria has the capacity to emerge as global leader in micro-insurance.

He said "Nigeria is ready to emerge as global leader in micro-insurance. A regulatory structure is in place. Efforts have been and continue to be made to help insurers manage the paradigm shift required to fully understand what it means to successfully offer micro-insurance. The population and demographics make Nigeria a very attractive place for micro-insurance because large volumes are fundamental to insurers."

"Where Nigeria is currently somewhat weak is in terms of high volume distribution channels. Insurers can develop good products but if they cannot get them to the low-income markets, then all is wasted. Additionally, insurers remain reluctant to embrace the micro-insurance market because they are not confident in the business case. On a number of products - for example, life, accident, hospital, cash - the business case has been well established in many countries. For others - for example, private, un-subsidized comprehensive health care insurance - there is not yet a clear business case. But this still leaves a huge potential market that insurers in Nigeria could access.

"There is a potential market for micro-insurance of at least 50 million people with premiums of at least USD 500 million. As these people move towards the middle market, they will demand additional micro-insurance/insurance products to address their growing risk requirements. This will not come tomorrow but Nigeria could enjoy such volumes within the next five to 10 years."

"The map shows the percentage of the population that is covered by micro-insurance. In Nigeria, this is a mere 0.68% while in neighboring countries which are arguably less prepared than Nigeria, coverage ratios are almost all significantly higher. Indeed, insurance companies in Ghana provide micro-insurance to 7% of the population in that country. Nigeria is ready and should surpass these other markets."

According to him , National Insurance Commission (NAICOM) policies has laid a strong foundation for the underwriters to leverage on the scheme.

He said "NAICOM, with industry input, has done a great job developing the "Guidelines for Micro-insurance Operations in Nigeria." This has created an opportunity for insurers to more easily enter the micro-insurance market in a potentially successfully manner. The key constraints have been addressed to facilitate commercial micro-insurance."

"The issue in Nigeria, as with so many other countries, is in the details of implementation. While a good framework is available, insurers must recognize the opportunity and leverage that to dramatically enter the market. Where problems occur is in really understanding what "simple" means, what "fast claims payments" mean and thus how to structure operations and processes to allow for real simplicity. This level of operational clarity does not appear evident in Nigeria yet and this will hold back micro-insurance expansion."

Asked whether the regulatory minimum capital base to operate a micro-insurance underwriting business in Nigeria adequate to instil confidence and trust , he said "Generally, the minimum capital requirement in Nigeria for micro-insurance (N150m for life and N200m for non-life products) should be appropriate for this market. Micro-insurance offers limited risk to insurers given the relatively low value of the sums assured. A combination of risk-based oversight on these insurers; reinsurance when suitable; and liquidity, solvency and reserve requirements, should be sufficient to instil confidence and trust in the market, at least, in terms of institutional strength."

Suggesting ways by which micro-insurance operators can make the product work in Nigeria , he said "Especially among the low-income population and in almost every country, micro-insurance starts with low insurance acceptance. This emanate, to a large extent, from poor insurance servicing. Low-income people see the difficulties that others have in obtaining settlement of legitimate claims. They perceive that insurers are happy to take premiums but do not want to honour the claims or introduce too many obstacles for people to be able to make the claims. Also, insurance is an intangible product, unlike savings and credit which often have greater acceptance, meaning that beyond the claim payment to only a few policyholders or beneficiaries, direct micro-insurance benefits are not experienced even though micro-insurance enables greater efficiency for all policyholders in financing loss recovery and freeing up capital that would need to be reserved for protection."