Citizens’ poor access to credit is limiting their capacity to take insurance policies, thereby stalling penetration in Nigeria.
In other parts of the world where citizens have access to cheap credit to acquire assets, insurance penetration is high as they have to insure the investments such as buildings, land and vehicles.
In Nigeria, access to credit has been sluggish, stalling at between two and three percent over a 10-year period (2010-2020), and far below the federal government’s 40 percent target by 2020, according to EFInA report.
Julian Mgbolu, an insurance broker, said insurance penetration in Nigeria is low due to a sluggish growth in access to credit, particularly among low-income and informal sectors.
She said without adequate credit infrastructure, consumers and small businesses will continue to lack financial incentives to acquire assets. She said this affects the growth of insurance, which should have benefited from providing risk protection in the event of default.
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“As lending institutions remain hesitant to expand services, insurers face a shrinking customer base and limited avenues for distribution,” Mgbolu said.
Insurance penetration in Nigeria is 0.5 percent of the gross domestic product (GDP) in 2023, according data from the National Insurance Commission (NAICOM). Namibia’s penetration stands at 9.8 percent, while Kenya’s is 4.5 percent.
The EFInA Access to Financial Services in Nigeria 2020 Survey shows that while overall financial inclusion continues to grow incrementally, progress has been too slow to meet the National Financial Inclusion Strategy targets.
Looking at other countries including India and Kenya, EFInA noted that there is a clear national commitment and support toward financial inclusion in those nations, with strong focus on access, usage and quality largely supported by the government scheme.
It also noted most innovations in the financial system are enabled by regulations, mandates and policy review.
Also in both countries, most products like access to credits are targeted at addressing specific needs of the mass market, and are usually championed by government schemes and usually subsidised.
An insurance underwriter, who would not want his name mentioned, said in advanced countries, access to credit has helped people improve their lives, with support from insurance companies guaranteeing the facilities and enabling access.
The underwriter said financial education is key to achieving strong inclusion across all levels of the population.
Taking a loan in Nigeria is expensive as the benchmark interest rate stands at 27.5 percent. Deposit money banks lend at 32 percent-50 percent across Nigeria.
Joshua Ogbeifun of Leadway Assurance said low penetration is a major challenge facing the industry, noting that stakeholders must play their role to increase uptake of insurance across the population.
Ogbeifun, while stating that insurance low penetration in Nigeria shows that the nation is lagging peers, advocated for the simplification and personalisation of insurance products and services to meet the yearnings of the insuring public.
He charged the regulators to put adequate regulatory framework in place targeted at raising penetration.
Ogbeifun said there are about 12 million cars on the roads in Nigeria and only about three million have valid insurance policies, noting that this is not the best for the industry and the nation at large.
Ogbeifun, who called on the government to ensure changes in the nation’s macro-economic conditions to encourage job creation and increased employment, also urged the government at all levels to provide adequate credit facilities that promote private business operation and entrepreneurship in order to empower the people financially.
“If there is access to credit, people can acquire assets. People can take loans and invest, and all of these will be insured to protect against losses,” he said.
Current measurements of the status of financial inclusion in Nigeria stands at a headline figure of 64.1 percent, portraying progress but falling short of the 80 percent target stipulated for the end of 2020.
