The insurance industry started in Nigeria with the establishment of Royal Exchange Assurance in 1921. Today there are 67 insurance companies in Nigeria, according to National insurance Commission (NAICOM). Despite the impressive growth of the industry in over a century of its existence in Nigeria, insurance penetration, measured by gross insurance premium as a percentage of gross domestic product, GDP, is a mere 0.5%, compared to 12% in South Africa, 2.29% in Kenya, 1.20 in Cote d’Ivoire and 1% in Ghana. Only 3% of Nigerians have health insurance, which is considered the most popular form of insurance in Nigeria. Only 3.4 million out of 12 million cars in Nigeria are insured, according to Leadway Assurance.
Nigeria ranks 62nd in the world with $1.64 billion premium representing 0.2% of premium collected globally in 2018 (according to Nigerian Stock Exchange, 2019). In naira terms, gross premium income of insurance companies in Nigeria was N520.1 billion in 2022, according to a study done by Agusto & Co. in 2022.
Insurance penetration is an important measure for insurers, regulators, and policymakers, as it helps them understand the level of risk protection and financial inclusion in a given market or population. At 0.5%, it means Nigerians have one of the lowest protection and risk awareness in Africa and the world.
Factors responsible for low insurance penetration in Nigeria
- Low level of awareness: This is a major challenge in Nigeria, with many people neither understanding the benefits of insurance nor appreciating its value.
- Inadequate access to information technology, compared for example to commercial banks in Nigeria.
- Weak regulatory framework. Insurance companies face a weak regulatory framework.
- Lack of adequately skilled manpower. This refers to technical underwriting skills. Part of the challenge is that many highly trained insurance and actuarial specialists are attracted to other sectors of the economy where they receive more attractive remuneration.
- Low standard of living due to the growing level of poverty in the country. According to a 2022 study done by the Nigeria Bureau of Statistics (NBS) 63% of Nigerians or 133 million Nigerians are multidimensionality poor.
- Lack of trust: Nigerians do not trust insurance companies.
Challenges facing the Nigerian Insurance Industry
These challenges include:
- Inappropriate pricing and risk profiling
- Poor product market fit.
- Inadequate distribution channels
- Low public confidence
Growth Prospects:
- Despite the challenges, there is considerable scope for growth in the Nigerian insurance industry, driven by the country’s large population and increasing economic activity.
- Life insurance premiums, for example, have increased progressively in Nigeria in the last quarter century. It increased from 9.2 million Euros in the year 2000 to 105.2 million Euros in 2010, then to 475 million Euros in 2020 and to 677.3 million Euros in 2022 (according to Statistica).
- Nigerian insurance companies need to enhance their capital base and enhance their technical skills to handle big ticket underwriting in a major sector like oil and gas as well as take advantage of improving insurance awareness among the middle class and businesses for both life and non-life underwriting opportunities.