Despite Nigerians’ well-known entrepreneurial spirit and willingness to invest in various products and services, insurance remains an unpopular choice. This raises the question: why do Nigerians shy away from insurance, even though it offers protection against financial loss?
Insurance, after all, is a risk-transfer mechanism where, for an affordable fee, an insurance company compensates the policyholder for specific financial losses arising from events such as accidents, illness, or property damage.
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Globally, insurance has provided financial security for many. However, Nigeria presents a stark contrast. According to the Chartered Insurance Institute of Nigeria (CIIN), only 13.4% of the population is insured, equating to approximately 13.4 million individuals out of a total adult population of around 100 million.
Further, Agusto & Co.’s 2022 report paints a grimmer picture, revealing that only 0.5% of Nigerians have insurance coverage. These figures highlight the urgent need to understand the reasons behind the low adoption of insurance in Nigeria.
1. Dependence on Divine Protection
Nigerians are deeply religious, and this devoutness often influences financial decisions, including the choice to purchase insurance. Many rely on their faith for protection against life’s uncertainties, believing that divine intervention will safeguard them from harm.
Consider the example of two neighbors: one relies solely on faith to protect their home during a severe rainstorm, while the other files an insurance claim to cover any damages. Days later, the neighbor with insurance has their home repaired, while the other is left dealing with the aftermath. While faith provides spiritual reassurance, insurance offers practical protection against financial loss.
2. Lack of Trust in Insurance Companies
Another major barrier to insurance adoption in Nigeria is a lack of trust in insurance companies, particularly concerning claims payments. Historically, there were issues with delayed settlements, which fueled skepticism. However, significant regulatory changes have been implemented to address these concerns.
In 2003, the National Assembly enacted the Insurance Act, introducing stricter regulations and higher capital requirements for insurance companies. These measures, along with subsequent reforms by the National Insurance Commission (NAICOM), have improved the financial strength of insurers.
For example, Coronation Insurance reported gross written premiums (GWP) of ₦18.75 billion in 2023 and paid over ₦3.7 billion in claims. These figures demonstrate that insurance companies are increasingly meeting their obligations.
3. Economic Factors and the Cost of Insurance
Economic constraints also play a role in the low uptake of insurance. Many Nigerians prioritize immediate needs over long-term financial planning, such as buying insurance. This is often due to low income levels and limited savings culture.
However, the rise of micro-insurance and retail products is gradually making insurance more accessible. These products cater to individuals in the informal sector and those with limited income. For example, Coronation’s E-term insurance offers coverage for permanent disability, critical illness, and death, with premiums as low as ₦500 per month.
Also read:
Challenges and Opportunities for Insurance in the Nigerian Economy
Unlocking the Potential of Insurance in Nigeria
Understanding the Role of Reinsurance in Nigerian Insurance Industry
Navigating the Waters of Marine Insurance in Nigeria
4. Lack of Awareness and Education
A significant factor behind the low adoption of insurance in Nigeria is ignorance. Many Nigerians are unaware of the benefits insurance can offer, leading to a reluctance to purchase coverage even after experiencing financial losses. Public awareness campaigns and educational efforts are crucial to helping individuals understand how insurance can provide financial stability.
5. Limited Knowledge of Insurance Products
Beyond basic awareness, many Nigerians are unfamiliar with the specific insurance products available to them. While they may know about third-party motor insurance, fewer are aware of options like third-party fire and theft coverage, which offers additional protection at an affordable rate. Similarly, products like business interruption insurance, which can help entrepreneurs recover lost profits, remain underutilized.
Insurance companies have a role to play in bridging this knowledge gap by promoting a wider range of products tailored to the public’s needs.
6. Complex Insurance Processes
The complexity of the insurance purchasing process and difficulty understanding policy documents also deter many Nigerians from buying insurance. Simplifying the process, offering quicker turnaround times, and making policy details more accessible would encourage more individuals to consider insurance.
In conclusion, these factors contribute to the low adoption of insurance in Nigeria. However, the insurance industry is actively working to address these challenges. Service delivery has significantly improved, and the industry’s gross written premiums reached ₦1 trillion in 2023, marking a 27% increase from the previous year. While progress is being made, there is still considerable room for growth in ensuring that more Nigerians benefit from the financial protection that insurance offers.
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