Nigeria lags in insurance market penetration over cash-based economic system
by MODESTUS ANAESORONYE
March 5, 2018 | 1:51 am| | | Start Conversation
Facts on why Nigeria’s insurance penetration is extremely low despite its huge population, when compared with other countries like South Africa, Morocco and Kenya with lower populations have emerged.
Investigations show that, Nigeria’s strong attachment to cash based economic system as against credit based economy in other countries is the key reason for the low penetration.
According to experts, credit economy makes buying insurance as effective risk management mechanism, which is made compulsory for transaction to be completed, whereas in cash based economy people have the choice to take insurance or leave it.
This, experts say accounts for why countries with high credit system have higher insurance penetration than those that are cash based.
At the end of 2016 according to Sigma Preport, Nigeria with a population of 180 million has insurance penetration to GDP of 0.27 percent, while South Africa with population of 55 million has a penetration to GDP ratio of 14.27 percent, the highest in Africa.
Tunji Amokade, head, retail business, Leadway Assurance Company Limited said the success story of insurance in South Africa, Kenya, Morroco, was as a result of their credit-based economy, stating that until Nigeria borrows a leaf from these countries, low penetration will continue.
While calling for institutional structures that allows credit to thrive, he said, insurance can be incorporated into some credit-based services, thereby, increasing insurance adoption and contribution to the nation’s economy.
He also said that the future of insurance industry lies in the retail market, noting that, the commercial market is saturated. “The industry has been targeting the upper class, but the market now resides in the middle and the lower classes,” Amokade said.
Amokade, while speaking on ‘Micro Insurance Business in Nigeria’, added that despite the huge population the country is blessed with, low insurance penetration is still a major issue.
In the African Insurance Barometer 2016, produced by Schanz, Alms & Company for the African Insurance Organisation (AIO), credit life insurance ranks first among the most profitable lines of business.
The report stated that as many loan agreements require credit life insurance to protect lenders, the product is in high demand, not only in the microinsurance arena.
According to the report also, claims ratios are typically very low, making the product very profitable for life insurance.
Analysts say that although you can obtain credit insurance as an individual, in most cases, a group policy is sold to a lender such as a bank, finance company, credit union or a vendor such as an auto dealer or a furniture store.
“When you borrow from a lender that has a group policy, the lender may offer the credit insurance as an additional service. If your application for insurance is approved, you will be given a certificate of insurance, which describes your coverage and serves as proof of insurance.”
Credit insurance is the insurance that you can purchase when you take out a loan that protects both you and the lender in the event that you are unable to pay the loan due to death, disability or unemployment. Credit insurance is always sold in connection with a specific loan. The cost of the insurance (if any), is generally built into the loan payment.
The growing middle class and the demographic structure of the Nigerian population are skewed to favour credit insurance and asset acquisition. This is expected to become better if there are policies that can drive purchase of cars and other household equipment by many young Nigerians.
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