By Rosemary Onuoha
The integration of agriculture and the informal sectors into the financial system as well as development of insurance products and channels to the market that would cater to their needs are a necessity if reasonable insurance penetration is to be achieved. Group Managing Director of Royal Exchange Plc, Mr. Chike Mokwunye who stated this, said, “With the structure of the Nigerian economy where agriculture and the informal sector are growth drivers and contribute substantially to the GDP, and the participants in these sectors constitute a larger percentage of the working population, the integration of these sectors into the financial system and the development of insurance products and channels to the market that would cater to their needs are a necessity if reasonable insurance penetration is to be achieved.”
Mokwunye, who stated this at the Champion Insurance day in Lagos, added, “In Nigeria, households, businesses – especially the small and medium scale enterprises and the informal sector – demonstrate low level of financial literacy. They often lack sufficient awareness of the risks to which they are exposed, the ability to correctly assess these risks and the knowledge of insurance products that are designed to mitigate the insurable risks.
Mokwunye identified factors responsible for low insurance penetration in Nigeria to include poor disposable income and a relatively weak economy; lack of awareness; competition through pricing/mispricing of risks; poor image due to lack of trust/perception about insurance by the general public (often given too much premium); as well as nature of insurance business and benefits.
Others are traditional/cultural safety nets which “crowd out” demand for private, commercial (formal) insurance solutions; lack of reserves/resources required for research and development of new products/channels; concentration on the elite class, corporate clientele and public sector; and lack of product/channel development aimed towards the bottom of the pyramid.
Mokwunye said that the insurance industry has experienced rapid growth in premium income especially in the last decade; however, the impressive growth rate has not been accompanied by meaningful insurance penetration, which remained low at 0.30% as at 2014. He said, “A developed insurance market contributes to social and economic stability. Insurance in any economy presents the basic tool of its risk management system.
Insurance is crucial in mitigating risks and catalyzing growth of enterprises and markets by providing protection over numerous forms of exposures. Insurance also helps in minimizing financial stress for individuals and households. “Insurance plays an important role as a veritable source for wealth accumulation through mobilizing domestic savings and providing a large pool of capital which government can tap into to finance budget deficits; especially for capital projects.
Hence, a strong and virile insurance industry is a pre-requisite to any country’s economic growth and development. It is this underlying principle that drives government all over the world to devote particular attention to the development of the insurance industry.
“A developed insurance market helps reduce social spend of the government through reducing the financial burden on the state of caring for the aged and for those who have been rendered financial destitute due to incapacitation or death of a breadwinner or due to calamity such as flooding, earthquakes, bushfire, etc,” Mokwunye stated. According to him, to resolve the problem of low insurance penetration, government must demonstrate genuine interest in the industry.