In 2012, Nigeria launched a National Financial Inclusion Strategy (“NFIS”) in which it aimed at reducing the percentage of adult Nigerians that are excluded from financial services from 46.3% in 2010 to 20% by 2020.
This included a financial inclusion target of 40% in insurance by the year 2020. According to Enhancing Financial Innovation & Access (EFInA), a financial sector development organisation that promotes financial inclusion in Nigeria, this 40% target translates to about 43 million people of the adult population to be covered by insurance products by 2020 (about 107 million of which are over 15 years old based on 2017 population).
By 2018, it was obvious that the set target for insurance was nowhere near achievement and changes had to be made leading to the release of the revised NFIS.
Insurance, which is pre-determined protection against loss, is greatly underutilised in Nigeria.
In 2018, a study on Nigeria’s insurance development was undertaken by Cenfri. The outcome of the study showed that insurance uptake was at 1.9% of adult population reflecting insurance market penetration of 0.3% of Gross Domestic Product (GDP).
According to Augusto & Co’s estimates for the 2019 financial year, the insurance industry in Nigeria generated gross premium income (GPI) of N471 billion, approximately 12% higher than the preceding year’s GPI. Compared to other African countries like Kenya and South Africa with 2.9% and 14% respectively, insurance penetration in Nigeria is low.
Some of the factors accounting for the slow growth include:
- Regulatory barriers
- Weak underwriting
- Cultural and religious beliefs
- Premium leakages
- Slow pace of adoption
- Low enforcement of compulsory insurance
- Need for improved capital buffers to increase capacity
- Need for innovation in microinsurance to deepen penetration
- Need for greater utilisation of bancassurance by players; and
- Need for investment in takaful insurance
There is no doubt that a functional insurance industry enables efficient risk allocation associated with economic activities which translates to increased savings and investment, job creation and financial inclusion. Failure of traditional insurance companies to develop insurance products and business models that match evolving protection needs of consumers has also contributed to making insurance unattractive to prospective customers.
These hitches include absence of product modification, seamless and user-friendly onboarding platforms and easy and fast claim payment upon risk occurrence. The position is further exacerbated by the average Nigerian’s lack of disposable income to invest in insurance and regulatory barriers resulting in distribution limitation amongst others.
The Role of InsurTech in microfinance penetration
Nigeria has been identified as a country with tremendous potential for microinsurance notwithstanding the current low rate of penetration compared to other African countries.
This is a product offering that targets the low income population by offering risk cover with payment of minimal premium. There is still a whole lot that the industry’s multiple regulators can do to improve the microfinance landscape.
Notwithstanding the challenges however, how can InsurTech maximise the potential of this untapped market? InsurTech as an aspect of FinTech is the use of data and technology innovations to improve customer experience, simplify policy management and increase competition in the insurance sector.
Artificial intelligence (AI), blockchain technology and machine learning have been used to revolutionise the insurance landscape and can be used effectively in Nigeria to engender microfinance penetration. Some of the solutions we have seen include creation of smart contracts, operational efficiency, fraud prevention and tailored product pricing.
For instance, Nigerian startup Curacel helps to support rapid claims management and accurate payouts by eliminating payouts for fraudulent, wasteful or abusive claims through the power of intelligent software. Helium Health is also providing a similar offering through its Helium Cover, a product which seeks to reduce fraud and simplify health insurance claims process.
The application of InsurTech should address the current realities of lengthy and inflexible underwriting process, manual actuarial process for retrieving, transforming and processing data which increases the time and the cost of the actuarial process, slow payments and collections system which leads to discrepancies and delays in reconciliation, and a claims process involving extensive paperwork and lacking information transparency and status tracking. The enhanced data and digital capabilities should help harness savings from efficiency gains and boost consumer confidence.
There is an identified reduction of insurance products available for the low-income Nigerian markets which we believe InsurTech startups can address. A good place to start would be to identify the financial and economic activities of the low-income households which would benefit from increased microinsurance penetration. The low hanging fruits products would be health, life, accident, micro businesses, and agriculture.
The revised NFIS recognised the need for financial inclusion through tailored product design amongst identified key excluded groups such as women, youth, people in the North, rural people and SMEs. These are areas where InsurTech startups can focus as they partner with insurers.
In March 2020 this year, Zenith Insurance entered into partnership with telecommunications company – MTN to launch a USSD service for easy mobile insurance service. With over 64 million subscribers in Nigeria, MTN has a veritable platform to significantly drive insurance growth if the partnership is well harnessed .
In October 2018, fintech startup PiggyVest partnered with insurance company Avon HMO to provide monthly health plan payments for users to engender flexibility and affordability to their largely Nigerian youth users.
Last year, Casava Insurance Limited acquired a license to operate as a state microinsurance company in Lagos dubbing itself the “World’s 1st WhatsApp AI Insurance”.
Data Collection and Privacy in Nigeria
Unusual insurance products and business models come with attendant risk. Use of data is pivotal to the success of Insurtech for better underwriting, policy management and customer engagement. This obviously raises concerns about data collection and privacy of potential customers.
The principal legislation on data protection in Nigeria is the Nigerian Data Protection Regulation 2019. Other general legislations on data protection include the Constitution of the Federal Republic of Nigeria, 1999 (as amended), Freedom of Information Act, 2011, Child’s Right Act, 2013, the Nigerian Communications Commission 2003, the National Identity Management Commissions Act, 2007, the Cybercrime Act, 2015 and the HIV and AIDS (Anti-Discrimination) Act 2014.
InsurTechs and their insurer partners must ensure that personal data submitted by a data subject is not exposed to breach leading to unauthorised disclosure, access, alteration or loss of customer’s data. To avoid liability, InsurTechs must be transparent in dealing with data subjects. This will require full disclosure of the specific purpose of data collection.
The consent of the data subject must be obtained before data collection and the InsurTech Company must safeguard against the use of the data for other purposes like targeted online marketing. There must be secure data back-up, scheduled virus and malware scans, planned user data access including onsite and offsite copy.
Another issue InsurTechs and insures will contend with is identity fraud. With digitalisation of onboarding and claim payment processes, impostors may clone a customer’s identity and documents in order to demand and access benefits due to an insured or beneficiary of a policy.
To minimise its risk exposure from identity fraud, customers must be enlightened on the risk of personal data exposure, insistence on the use of complicated passwords and independent verification procedures, and there must be conduct of thorough due diligence during onboarding and before claims payment. InsurTechs must also invest in cybersecurity by having strong firewalls and following internationally recognised digital security best practices.
The future of insurance is InsurTech. For traditional insurance companies to thrive in the coming days, they must see tech companies as partners rather than competitors. On the other hand, InsurTechs must avoid the pitfalls of traditional insurance companies and develop more customer focused products and business models.
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