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What are the inhibiting factors against the growth of the insurance industry in Nigeria? Why is the industry performing far below its potential and that of its peers?

In defiance of National Insurance Commission's constant effort to cure and mitigate the challenges causing the underperformance of the insurance industry, there are still many challenges militating against the growth of the insurance industry. Some of them are briefly explained:

Unfavourable macro-economic environment

The main concept of insurance is that of spreading risks through a pool of capital that are contributed by the insured and invested in profit yielding ventures. It is through such investment returns that insurance firms can meet up with their obligations to their clients. However, such management of the insurance capital pool presupposes a stable economy capable of attracting long-term investments.

However, given the financial misappropriation and indiscipline in the Nigerian economy, together with the volatile nature of the inflation, exchange and interest rates, most insurance firms are not willing to invest their money in any long-term ventures. Rather, they find it safer to invest in short-term ventures, even though such investments will yield less profit and reduce their capacity to meet up with their promises to their clients. Sequel to this, the government must intensify their effort to promote a stronger institutional framework that will enable financial service industry to thrive and promote operational efficiency of insurance firms.

Lack of trust

The insurance industry is widely mistrusted by average Nigerian given the many cases of genuine claim denials, fraudulent behaviours of insurance intermediaries and complicated clauses in the policy documents. This mistrust on the industry, which is amplified by the inadequate nature of the necessary institutional frameworks that enforces the contracts, makes it difficult to convince people to pick

up any form of insurance. On the other hand, the fraudulent claims syndrome by some of the insured forces the insurance firms to take extra control measure that increases the transaction cost in the industry and together with the small size of insured pool raises the rate of premium in the industry. The effect is that the majority of low-income people cannot afford insurance products.

Another factor that causes a lack of trust in the industry is religious barriers.

Nigeria is a multi-ethnic/religious nation. While the Muslims do not agree with interest related credit and life insurance, some Pentecostal Christians see the insurance concept as a form of disbelief and lack of trust on God who is most protective and just to the righteous. Aside from that, the religious barriers in some parts of the country about insurance products such as life and interest related policies contribute in

Inadequate access to Information Technology

Despite being in a world where information technology seems to be ruling everything, many companies in the insurance industry still do not have a fully automated and integrated computer software system. The predominantly analogue system used in the industry makes it difficult for insurance companies to settle claims promptly as well as fight the fraudulent practices and mistakes in the insurance business operations. Still, many insurance firms are not yet ready to abandon this analogue system given the high rate of internet fraud in the country and many other problems connected with modern technologies. This fear of new information technology is evident in the recent suspension of the mobile network by NAICOM as a channel of insurance distribution given many cases of fraud carried out through the system. In the few places where these new technologies exist, it is still difficult for the low-incomers who lack proper education and awareness about the products and technologies.

Weak Regulatory Framework

The regulatory framework for micro-insurance operation in Nigeria is very weak. Even though the regulator NAICOM recently released a new guideline for the sector, there is still some inconsistencies and gaps in the framework, such as matching the rules with adequate enforcement policies. For instance, there is a need

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for policies making some insurance products compulsory and mechanism to ensure full implementation of such policies. Another major omission from the recently released guideline is a standard premium rate on certain micro-insurance policies such that there is a benchmark for rates when negotiating premiums. The weak police and judiciary in the country make matters worse. People who seek redress from these organizations must, first of all, compare the cost of such to the indemnity they stand to lose if they decide otherwise. In most cases, the cost of such litigation, as well as the long-time it takes, leaves a rational individual offended with no other choice but to cut losses.

Lack of skilled personnel

As strange as it may seem, there is a huge shortfall of skilled professionals (underwriters, brokers, actuaries, etc.) in the entire insurance industry. Insurance companies inadequately train their employees. Majority of the insurance firms attract low-skilled personnel due to inadequate payment/commission package. Thus, there is always a difficulty in retaining competent employees. Many top executives in the insurance industry are marketers who have rose through the ranks not because of their strong technical background of the industry but because of their distinctive salesmanship and the ability to bring in more clients than the others. Reasonable as that may seem, more than the ability to bring in customers, the combination of a good technical background and business skills should be the prerequisite for assuming such top executive position. May insurance sales-person out there do not even know about the concept of micro-insurance let alone convincing another to enrol in one. The insurance firms, on the other hand, are reluctant to offer adequate training to their sales-persons since the good ones will leave as soon as they find better jobs elsewhere. The result is the culture of product selling rather than marketing. With a singular focus on the size of the commission, most insurance sales-persons are ready to sell insurance policies to anybody regardless of the product’s suitability to the person’s need nor his/her risk profile and tendency to default. This is even worse on more vulnerable low-income prospects who do not know much about micro-insurance nor understand most clauses in the policy documents.