The Nigerian car insurance market isn't big enough for ETAP, and that is why it has secured what it calls Ghana's first insurtech licence to expand its tech-enabled flexible car insurance to the West African country.
Explaining why the company is expanding into Ghana when it only has a presence in 12 Nigerian states, Ibraheem Babalola, ETAP CEO, said anyone building insurance in Africa needs to have a Pan-African mindset to do any serious numbers.
Using the car insurance market as an example, he said the UK has more cars than the whole of Africa, which means the growth of a car insurance company is severely limited in one African country.
Data by WhichCar corroborates Bablola's claims, revealing that as of 2024, there are 26 million cars in Africa, while the UK has 33.73 million cars according to the RAC Foundation.
However, the size of the market is not the only thing that stands in the way of growth for insurtechs like ETAP. Given their unorthodox approach to insurance, Babalola said existing insurance regulations do not completely cater to them.
These unorthodox approaches and business models were created to make insurance easier to access.
ETAP, for instance, brings speed to insurance. According to its website, users can get their vehicle insured in 90 seconds and get claims paid out quickly. It also adds interesting layers, such as rewarding drivers for good driving and even using telematics to know when an insured car gets into a crash.
Competitors like Pay-U also provide pay-per-minute comprehensive motor insurance for as low as 70 kobo per minute. MyCover.ai, on the other hand, offers embedded insurance which creates infrastructure for insurance providers to leverage.
Per Babalola, there are regulatory gaps when it comes to these new forms of insurance. For example, insurtechs cannot underwrite policies even when they have the balance sheet to carry the risk.
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They need to underwrite through traditional insurance companies, which limit the range of products they can create.
Things are changing
While regulatory gaps exist when it comes to insurtechs, Babalola acknowledges that regulators are being proactive about closing the gap.
He said industry players are engaging regulators like the National Insurance Commission (NAICOM).
Interestingly, a new insurance category might be created in Nigeria before the end of 2024.
The divide between traditional insurance and insurtech is similar to that of traditional banks and fintechs.
"Before the Central Bank of Nigeria (CBN) created dedicated licences for agency banks, agency banking already existed for years."
Babalola believes regulation will catch up to insurtech the same way it did fintech and might even be faster. A web aggregator licence category has already been created, but it doesn't address the operations of insurtechs like Pay-U and ETAP.
While these new modes of operation have been created to make insurance easier, insurance penetration in most parts of Africa is still low.
As of 2022, South Africa had the highest rate of insurance penetration in Africa at 11.3%, followed by Namibia (7%), Morroco (2.1%), and Kenya (1.2%). Other countries on the list had less than 1%. Africa had the second lowest insurance penetration rate in the world at 2.1% after the Middle East with 1.7%.
Some of the problems attributed to this low insurance penetration range from poverty, distrust for insurance companies, and lack of awareness.
While insurtechs are making insurance more accessible, these underlying problems still exist, and Babalola confirms it.
He groups ETAP's users and potential users into three categories: those who already understand insurance and find ETAP's solution interesting; those who have not bought insurance before, but like how easy ETAP makes it; those who use insurance, but will not trust a young company like ETAP; and those who cannot purchase insurance because of macroeconomic challenges.
Babalola is aware that insurtech companies have their work cut out for them if they're going to play a role in improving insurance penetration in Nigeria. This is why ETAP is working on products that are geared towards improving insurance awareness.
These products will be powered by insurance agents, who are important for insurance awareness. When asked if insurance companies had existing banking agents, Bablola said no because "insurance is sold, not bought. No one wakes up to buy insurance."
While more agents could increase insurance awareness, these models also have a fundamental problem. According to Intelpoint's The Nigerian Insurance Industry report, insurance agents don't like their job.
According to the report, 50% of the agents who left the industry stated that they would not return due to poor remuneration. Most of them said the commission-based pay was not sustainable.
As ETAP celebrates its Ghana expansion, these are issues the startup needs to consider. And while insurtechs are important to improving insurance penetration in Nigeria, the major problems may not be solved with innovative technology.
