Late last year, I published a guide to the FinTech ecosystem in Nigeria with a snapshot of the most active players across key verticals. While I was preparing that guide, I could not find a pure digital first insurance platform to include and had to settle for the comparison and listing platforms. Some of the recurring questions I have been asked since then is “where are the digital insurance platforms and why aren’t startups building for the insurance vertical in Nigeria?”. In answering these questions, I did a bit of research and decided to share some of my findings and thoughts.

For context, the insurance industry in Nigeria is one of those largely untapped sectors when you consider the possibilities on a macro level. Although the gross premium income has grown to about N448Billion in 2018 and the industry witnessed a CAGR of 25% between 2012 and 2016, the insurance penetration in Nigeria today is just about 0.5%. This is one of the poorest in Africa when compared to countries like Ghana (1.1%), Kenya (2.8%) or South Africa (17%). According to a survey conducted by Chartered Insurance Institute of Nigeria (CIIN) in 2018, out of about 100million adult Nigerians, over 86 million do not have any form of insurance. Also, the insurance density in Nigeria (a measure of industry gross premium per capita) is reported to be one of the lowest (US$6.2) in the continent with South Africa (US$762.5), Kenya (US$40.5) and Angola (US$30.5).

This poor performance coupled with the strategic importance of deep insurance industry to an economy, suggests that there is a gold mine that is waiting to be tapped in the space. The question then remains why is there very little activity from Nigerian startups in the insurance space. This is my attempt to summarize and highlight a few reasons why the industry has been generally underwhelming (from a retail insurance perspective). Also, why it has been largely avoided by startups and some ideas on what can potentially be done differently by entrepreneurs and innovators looking to get into the insurance space.

First of all — Nigerians Don’t Buy Insurance. Why?

“Indifference”. For the majority of people, they just don’t care! Nobody wakes up thinking about buying insurance. In Nigeria, different reasons have been postulated for this indifference but I have highlighted the few that I believe to be most fundamental.

• Lack of Instant Value/Benefit

I started with this point because it is applicable to the largest category of Nigerians. Many people struggle with delayed gratification, even rich people. While purchasing most insurance products, customers typically do not get any value instantly. People feel like they are paying for something they will most likely never use or if at all, the value is much later in the future. For this reason, many people relegate insurance to the background as something to think about much later when they’ve sorted more pressing bills.

• Religious and Cultural Belief

Our culture and religion have more influence on many of us than we give it credit for. Nigerians are very religious and superstitious. In a country where there are people who will not take medications when ill because their doctrine doesn’t support it, buying insurance for such people could be regarded as a lack of faith. There are also individuals who think buying insurance means they might attract whatever loss it is they are protecting themselves against. For many Nigerians, we see our family and friends as a form of insurance. Beyond this, many individuals employ a common phrase to get insurance marketers to back off with their aggressive efforts “God is my insurance”.

• Lack of Awareness & Illiteracy

Nigeria’s adult literacy rate is about 59% which is bad enough considering our size but the real concern here is the possibility that 80–90% of the seemingly literate population do not know or understand what insurance is all about even if they’ve heard about it. For those few people who know about it, many do not have enough information and awareness on the where, why and how to go about purchasing insurance.

• Trust

This is one of the biggest challenges to the adoption of retail insurance in Nigeria. For the few people who have managed to buy insurance, a large proportion reported having a bad experience when it’s time for the insurance companies to pay claims. Sometimes this is due to the cumbersome and manual processes that the companies employ to validate claims and check fraud. However, this is not an acceptable excuse for an industry that is struggling to drive adoption. This mistrust will discourage more people who are already reluctant from seeing the need to buy insurance because the question will remain, will they pay claims?

• Affordability

I believe this is a product design problem and there are several good attempts to solve this. There are people whose income can accommodate insurance but still do not have insurance because they cannot afford the current payment structures. As with many things in Nigeria, many insurance policies require a lump sum annual payment that most people do not have when they’re also paying a lump sum for things like rent. For this set of people, affordability simply becomes the reason they do not buy insurance.

• Large Informal Workforce

For the majority of Nigerians that have insurance today, it is through their employer. I do not want to imagine what our insurance numbers would look like if not for compulsory insurance schemes for corporates. However, corporates employ only a small proportion of the workforce. The bulk of the population is employed by SMEs who are struggling for survival and rarely have the leeway to offer insurance as a benefit. Even though regulation is working to address this, enforcement has been a challenge. For freelancers/self-employed or micro-entrepreneurs, most insurance products are not designed or marketed in ways that appeal to these individuals.

• Macroeconomic Structure (Poverty)

For the poverty capital of the world where people are struggling to afford the basics like food, clothing and shelter, insurance is usually regarded as a luxury. A large percentage of the population is just too poor to afford insurance. In fact, we can bundle many other reasons mentioned above under poverty as the primary reason for poor insurance performance in Nigeria. It is common for most poor countries like Nigeria to have low insurance penetration. I have mentioned poverty last because even though an estimated 80 million Nigerians live below the poverty line, I believe it is worth investigating the reasons the other millions of people who do not fall in this category aren’t also buying insurance.

Why are Nigerian Startups not Building for the Insurance Industry?

Difficult Market

While I have highlighted some of the reasons I consider to be fundamental above, the list is by no means exhaustive. This explains how hard it is to sell in Nigeria today. It is only rational then that if most people do not buy or appreciate the need for insurance in Nigeria (except when it’s compulsory and they can’t avoid it), startups will have little incentive to build for it.

Limited Domain Expertise

Similarly, I do not believe there are many entrepreneurs in Nigeria that have deep enough experience and understanding of insurance and technology spaces to build impactful InsurTech companies. In comparison to other areas of the financial services such as banking, asset management, payments, lending, etc, the insurance space has not been as big a technology adopter and has therefore not attracted or produced enough technology talents that have the domain expertise and unique insights that are required to play in the space.

Regulatory Issues

Like other financial services verticals, the insurance space is heavily regulated, and the regulators here have not been as visible as their peers in the CBN. Also, the cost of acquiring a license is beyond the reach of many startups. Without a booming market or deep domain expertise to rely on, it becomes difficult for startups to convince investors to commit the required capital to kickstart such ventures. The regulatory issue is a lot deeper and I will shed more light on it later.

Considering this salient challenges I have highlighted, how then do we leverage digital technology to grow the insurance space in Nigeria? My position is that we need new thinking and innovation across the value chain and I have discussed some thoughts on how we can approach some of the highlighted challenges.

How Do We Drive Insurance Adoption? — Opportunities for Startup

New Tailored Products

Our insurance products as we know them today need to be redesigned if we want to reach more people. There are four areas that I think are worth focusing on when designing new insurance products

• Instant Benefit: Many Nigerians haven’t shown a good appetite for delayed gratification and always want to get instant value for their money. Many insurance products are futuristic in nature which explains why most Nigerians struggle to comprehend the value. Now, imagine a health insurance product that gets you 5 free full body checkups, or 10 free visits to a local clinic or gym, or buying car insurance and getting a free car tracker and car servicing instantly, or you buy phone insurance and get a free screen protector and phone case, or getting gadgets like fire alarms, fumigation instantly etc for home insurance. The list is endless because Nigerians are not the type of people that want to buy something that they will only get the benefit later, I believe giving them something no matter how small at the point of purchasing insurance will be a good incentive in driving adoption.
• Flexible & Affordable Payment Plans: New insurance products should support flexible payments like daily, weekly, monthly and even on-demand basis. This is how most people earn their income, it only makes sense that they make purchases the same way.
• Products covering events that are likely to happen and more specific: For example, unemployment insurance that pays people up to 70% of their salary for 3 months if they lose their job.
• Simple Onboarding, Underwriting and Claims Process: If you have ever bought any significant insurance product in Nigeria, you will know that it is still a largely manual process which can be quite tiring. A lot of people that want to buy insurance drop off because of this. Players need to invest in IT infrastructure and emerging technologies like artificial intelligence to help automate their entire process from risk management, premium collections (payments), underwriting, to claims processing. There will continue to be friction without an efficient and tight back-office.
• Flexible & Customizable Products: Many insurance products today are bundled in a way that customers are not able to make inputs or demonstrate their preference for what they really care about and want to protect. New insurance products should be broken down to the basic policies, such that customers are able to customize the policy by selecting what to cover or not cover

New Distribution Channels Through Partnerships

After designing these nice and specific products, it needs to be presented to customers at the right time, preferably at the point where they’re making a related purchase. That idea of sending marketers out to randomly go and hassle people to buy insurance needs to stop. For example, it makes sense to distribute phone insurance on an e-commerce website while a customer is buying an expensive smartphone, or sell health insurance to someone at a pharmacy or clinic onboarding them with just their phone’s USSD. Therefore, players need to invest in new mass channels and partner with other stakeholders who have channels that already reach the customers that they are looking to engage. This includes both digital channels like USSD, web and mobile apps, etc and also offline channels like agents and retailers in rural areas just as the banks are doing.

Aggressive Sensitization & Marketing

It is not enough to design new products and distribute them well, there also has to be a very deliberate, mass education and sensitization about the importance of insurance. This needs to be done in plain English (without the technical jargons) and local languages. This is something that all stakeholders need to come together to tackle. Beyond just regular awareness campaigns and ads, relevant ideas that can be implemented here include:

• Using pastors and imams as insurance advocates: For many people, their support system is their church/mosque. Pastors have multiple opportunities to encourage their members to buy insurance without advocating for a particular brand if they are encouraged and incentivised to do so.
• Using celebrities and influencers as evangelists because of the influence they weigh on consumer behaviour and their broad reach, especially amongst young people. Davido’s hit track #Assurance shows that this isn’t a concept that will not be very difficult to infuse. It just has to be done in a subtle manner.
• Leverage Relevant Trends: Regularly on social media, there are trends of people who need the public’s help to foot their medical bill, sometimes even prominent people. The sad reality in Nigeria today is that many people (even the “middle class”) are one major illness away from poverty. Imagine a mass campaign leveraging on this recurring incident tagged #OneIllnessAway. Simple concepts like this could drive awareness of insurance.
• Prompt and Public Claims Payment: Some customers believe that insurance companies are out to scam them and will do everything within their power to avoid paying claims when due. To disprove this assumption and build trust with consumers, insurance companies need to improve their claims payment and do so very publicly. The customers need to need to see, know and believe that claims will and are being paid.

The Regulator’s Conundrum

In my conversation with a few players, there seems to be a consensus that the regulators are their biggest problem and the reason they haven’t been as innovative as expected. Even though I believe the ideas presented above will help drive the adoption of insurance in Nigeria, they aren’t necessarily novel and will not be implementable without support from regulators. I have heard comments like “everything you want to do has to go through the regulators, even ad campaigns, they take a lot of time and they’re not the most receptive to new ideas”.

While I empathise with this assertion, I refuse to believe that the regulators are deliberately on a mission to stifle growth and suck the life out of the industry. The big issue I have noticed is a communication and engagement gap, there is very little interaction between the members of the insurance regulators and the broader ecosystem.

The onus is on the operators to engage the regulators more tactically by clearly communicating and showing how their ideas and initiatives benefit the consumers, the economy and even the regulators. The regulators play an important role that cannot be ignored and therefore need to be courted accordingly. I believe with regular, transparent and respectful engagement, a lot of the policy changes that are needed to drive insurance adoption in Nigeria will be achieved. In engaging regulators as innovators, I believe we can be disruptive without being cantankerous.

A cooperative and active regulation can lead to significant growth, especially in areas such as the enforcement of compulsory insurance, weak underwriting, premium leakages, etc

In Conclusion

While the insurance space in Nigeria is a tough nut to crack, the opportunities remain largely untapped and begging to be taken by those ready to do the hard work and play the long term game. I strongly believe there is an opportunity for new innovative players to build big businesses with a significant social and economic impact in this space.

I believe Nigerians will buy insurance when they are well informed of its benefits, it is simple, cheap and offered to them at the right time, at the right price and with the right incentives.