With the downward sliding price of oil, Nigeria’s major revenue source and its attendant impact on government expenditure, insurance companies are thinking of ways to take advantage of the country’s large population in the retail space to meet premium targets for 2016.
BusinessDay investigations reveal that most insurance companies, beginning in the new year, plan to intensify their quest for deeper penetration in the retail space, to enable them remain competitive as opportunities in government business look dim, with declining revenue.
Nigeria’s crude oil as at Monday January 4 sold for $38.32 per barrel in the international market, almost at a benchmark of projected $38 per barrel in the 2016 budget signed recently by President Mohammadu Buhari. This is as analysts have raised fears that the oil price might crash further to as low as $28 per barrel before the end of first quarter 2016.
The implication is that government expenditure in the budget, predicated on oil revenue, would be affected and prioritising expenditure to specific areas might also result to unprecedented strain on insurance sector premium target for 2016, analysts told BusinessDay.
Val Ojumah, managing director, FBNInsurance said his company recognises the potential in the retail space, and so, has intensified efforts to increase penetration through deployment of micro insurance products, as well as improve its distribution channels to reach the informal sector.
“We are working to grow the business, to increase insurance awareness to the public and to make sure that the general population find value in insurance.”
“We recognise that the larger proportion of our population don’t buy insurance. So, we have come up with what we called penny products that enable the ordinary person to buy insurance at just N2,000. As a company, we recognise the potential of micro-insurance in this economy and that was equally the motivating force why we got into mobile insurance.
Ojuma said there are more than 100 million mobile lines in Nigeria, and that many of them make up the informal sector. So, the easiest way to reach them is through mobile insurance, because a large proportion of the populace fits into this product.
Chike Mokwunye, forbudgetmer group managing director, Royal Exchange plc 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 observed that households and businesses, especially the small and medium scale enterprises and the informal sector, demonstrate low level of financial literacy, which portends a huge potential for growth.
Obasi Ngwuta, director, West African Business School, observed that more than ever, insurance should be a given priority by both individuals and government, particularly now that there is a shortage of funds for replacement in the event of loss.
According to him, the risks are better transferred to the insurance companies who are in the business of carrying and managing risks.
