Nigeria’s largest insurer, Leadway doubles down on the micro market for growth

Nigeria’s largest insurer, Leadway doubles down on the micro market for growth

When compared to the South African market, the Nigerian insurance industry is far behind in depth, size and revenue.

With a huge population almost thrice of the former, the low penetration of insurance has not only hampered the growth of Nigeria’s financial markets, it has reduced the growth and development of Africa’s largest economy.

While the country’s population tethers towards the region of 190 million in few years, the penetration of insurance and other risk mitigation products have been abysmally low despite the huge growth potential. Industry experts disclosed that just about 3 million unique individuals have at least one insurance policy, this is less than 1% of the population.

At a periodic training and interactive session with media professionals, Leadway Assurance Limited, Nigeria’s largest composite insurer with about 25% of the industry’s market share, laid bare the issues and barriers confronting the insurance industry and how the company is using a unique strategy to tap the growth potential in the market.

The Biggest Conundrum

One question that has not been asked by many stakeholders in the market is why is the South African market almost 50 times more than the Nigerian market?

Leadway experts concluded that although the Nigerian market has close similarities with Nigeria in culture, values and regional cooperation, there is one major distinction. South Africa is a credit based economy where credit is cheaper compared to a cash-based economy such as Nigeria where credit is very expensive and more than 90% of transactions are done on ‘cash and carry’ basis.

“There is credit in Nigeria but it is very expensive,” said Ms. Adetola Adegbayi, Executive Director/General Business at Leadway.

“Many people would rather sweat it out to make money than take on credit. If the interest rates are reduced, access to credit will become better,” she said.

More than 99 Problems

It is now a truism that has now been established that while the market has over-sold itself to the affluent (upper socio-economic class) and middle-class segment of the economy, the growth point for the market lies in the mass market, a largely uncovered part of the population that account for about 90% of the addressable market.

One of the major barriers to insurance penetration as posited by Tunji Amokade, President, Leadway Franchise Scheme, was the cost of insurance vis-a-vis the disposable incomes of the mass market; According to research, the average annual disposable income of an individual in Nigeria has been estimated at N25,000 . Insurance can only lay claim to about 10% of this amount, this puts insurers in a tight corner to figure out how to design products that will suit the market.

Trust is also a major barrier for prospective and existing insurance customers. Over the years, many Nigerians have developed a distrust for insurance companies and practitioners as a result of the negative perception regarding non-payment of claims. Insurance companies also have to grapple with increasing their reach to the market. With the huge land mass in Nigeria, more insurance agents will be needed to increase market penetration.

Financial education and understanding of financial product/services and how insurance plays a pivotal role is not fully appreciated. The high illiteracy level across the country has also not helped matters for insurance companies to properly relay their messages to their target audience.

Breaking the ice

Leadway intimated the media that it has fully understood the market and developed a strategy to leverage the opportunity in the mass market.

To solve the problem of affordability, the company said it has adopted a ‘Freemium’ model where for instance, an insured saves money and he or she is given a life cover up to a certain amount. This the company said has worked since it started developing products to suit this preference.

Many uncovered Nigerians often complain that financial services particularly insurance seem to be very far from the mass market to access for their everyday lives. To solve this problem, Leadway said it has domesticated its services to reach nooks and corner of their country through insurance agents and a referral structure. Processes have also been digitized with online sales channels bringing the business closer to the target market.

The media, the market too have roles

While we can go on and on to mention new strategies developed by insurers such as Leadway to make the business better for all, the media being the custodian of public opinion also have to play their roles in a balanced and responsible manner.

For instance, while many Nigerians take on third party motor vehicle insurance policies, it has been discovered people rarely make claims. This attitude further spoils the image of insurance and their practitioners as unreliable because there is a perception that they might not pay the claims when the risk event occurs.

“Encourage people to make claims,” says Adegbayi.” This is because “The more claims they make, the better the insurer gets. Insurance companies need to pay personal injury costs. Low claims impair public perception of insurance.”

To further educate the public, it was concluded that they need to know that insurance is a legal transaction of trust with appropriate sanctions for erring providers.” When an insurance company cannot pay claims, it will be dissolved. The only way to shape the industry is for people to use their power,” she said.

For the industry at large, micro insurance will become a major aspect to focus on. The National Insurance Commission NAICOM, has come up with a new policy for insurance companies to separate the business from its composite structure by setting up a separate entity. The agency has given an 18 month ultimatum for the practitioners to comply.