Growing global cases of climate threat, natural disasters, water scarcity, food insecurity and pandemics, have placed a spotlight on the potential of the insurance sector in promoting sustainable development. As risk managers, carriers, and investors, the primary role of the insurance sector is to avert and manage environmental, social, economic and governance challenges that threaten development.
When the UN Sustainable Development Goals (SDGs) was created, it was with a projection that its success will bring an end to extreme poverty, inequality and the threat of climate change globally. Over the years, insurance has taken the lead in alerting the society of the risks of climate change, loss of biological diversity and the growing pressures on forests, fresh water and other essential ecosystems (Global journal of finance and management 2014).
Insurance also strengthens the efficiency and resilience of an economy through the transfer of risk and by helping citizens minimize the financial impact of unexpected and unwelcome future events, whilst helping them organize their businesses and their lives with greater certainty; thereby contributing to the alleviation of poverty. According to the United Nations Environment Programme (UNEP), the insurance business model is built on the principle of mutualzation of risk – making it a particularly effective tool for the management of collective sustainability issues. Clearly, the insurance sector can play a role in sustainable development.
India for instance is already harnessing its insurance sector for sustainable development. As one of the countries to have integrated the SDGs into national development goals, a revamped crop insurance programme has been launched as one of the strategies to implement SDG2. Likewise, a health insurance cover has been launched by the government for families living below the poverty line.
African countries have also realised the importance of insurance in achieving sustainable development. At the Addis Ababa Action Agenda of the Third International Conference on Financing for Development, one of the strategies agreed by the nations for financing development post 2015, is to work towards developing domestic capital markets, particularly long-term bond and insurance markets where appropriate, including crop insurance on non-distortive terms (Item 44). Moreover, the nations further pledged to consider the use of insurance, investment guarantees…to incentivize foreign direct investment to developing countries (Item 45).
Although the insurance sector fully kicked off in Nigeria in the 1900s and has evolved over the years, it is still difficult to extrapolate its ability to facilitate sustainable development for the country with current trends. According to the minister for finance, despite that the Nigerian insurance industry has evolved with premium growing from about N75bn in 2005 to over N300bn today, it contributes approximately only 0.07 per cent to the Gross Domestic Product, which is less than the African average of 3.3 per cent, the global average of seven per cent and the about 12% in South Africa- the largest insurance market on the African continent.
Moreover, as at the third quarter 2017, 27 of the 56 insurance companies in Nigeria controlled less than one per cent of the industry’s market while majority remain unknown and unattractive to citizens and the business community. The sector continues to face the challenge of low-level market penetration, lack of consumer trust, low implementation of compulsory insurance and a lack of professionals that are adequately skilled in this space.
Hence, only about three million out of the over 180 million Nigerians have one form of insurance or the other to protect themselves from uncertainties while nearly 300 million low-income citizens in developing countries are covered by an insurance policy. The Nigerian insurance sector faces multiple challenges that threaten its potential to stimulate development.
Nevertheless, the insurance sector must be sustainable itself to impact on overall national development. According to the Global journal of finance and management, sustainable insurance is a strategic approach that aims to reduce risk, develop innovative solutions, improve business performance, and contribute to environmental, social and economic stability while enhancing resilience. Hence, until the Nigerian insurance sector is able to adequately contribute to environmental, social and economic stability through market penetration and growth, it will be difficult to employ it as an instrument of facilitating sustainable development.
Undeniably, the sector has witnessed some progress such as growth in total premiums, growing interest of foreign investors and the introduction of new insurance products in the growing mortgage and housing sector, which have sustained it since inception; there is still room for further improvement for it to directly impact on the journey to sustainable development in the country and on the continent as a whole.
Micro-insurance initiatives: World Bank 2010 statistics estimates that about 70% of the Nigerian population live below the poverty line while 57% live in rural areas. Nigeria is one of the countries in dare need of more products that reflect the lifestyle and financial stance of the people. It is only through the introduction of affordable micro-insurance products; especially for the agricultural and SME sector, that more Nigerians can be attracted to insurance. According to the National Insurance Commission (NIACOM), micro-insurance is an insurance usually accessed by low income earners in the society with the aim of including everybody and increasing the contribution of insurance to the country’s Gross Domestic Product. Already, NAICOM has released a draft of revised guidelines for micro-insurance operations in Nigeria; a concentration on this form of product by all insurance companies would no doubt herald the much desired quantum leap in the industry.
By providing micro-insurance to meet the needs of more individuals and small businesses, insurers contribute directly to reducing poverty and the vulnerability of the large poor populations. It is however not sufficient to introduce more micro-insurance products, it is also crucial to increase the reach of these products into the rural areas through local agents. This will help improve the risk management capabilities of the poor whilst decreasing their vulnerability; a direct push towards sustainable development. Allianz Group, a leading insurance company in providing micro-insurance solutions does this through its diverse products targeted at Africa, Asia, and Latin America, such as education insurance, disability insurance, personal accident, motorcycle insurance, home insurance, livestock insurance, crop insurance for farmers, credit Life.
An improved structure: Unarguably, the low insurance penetration in Nigeria is, in part, a consequence of the lack of trust and confidence Nigerians have in insurance companies. Over the years, the inability of the government to deliver basic amenities to the people has crushed the trust of citizens in the system. More so, citizens do not seem to enjoy the benefits of tax payment and community investments. This lack of trust in the system has transcended into a distrust in the insurance sector which also requires an investment of premium.
Furthermore, in many insurance companies, the process for claiming premiums seem to be cumbersome and lengthy while some do not deliver on promises. These factors discourage a lot of Nigerians from getting insured, coupled with the challenge of low income.
A redesign of marketing strategy to secure the trust of the masses while ensuring the prompt delivery of market promises is one approach to overcoming this obstacle. Moreover, prompt response to customers’ complaints is another way to ensure that the insurance structure becomes more favourable for every Nigerian to embrace.
Raising Awareness: Although there is no doubt that insurance companies are doing a lot to raise awareness on insurance products, an average Nigerian still has the impression that insurances are for large businesses and the rich whilst others believe companies do not pay claims but in reality, insurance is meant for everyone. There are about six (6) insurance products made compulsory by law by the Insurance Act 2003 and other sister legislations; including life insurance, employers liability, building and construction, occupiers liability insurance, motor or third party insurance and health care professional indemnity insurance; all of which are for the benefit of every citizen.
Nigerians need to be better educated on the different types of insurance and the unequivocal benefits of the insurance culture. The most effective way to achieving this is through a joint enlightenment strategy led by NAICOM, instead of the current strategy of individual insurance companies.
Nigerian sustainable insurance principles: As the Nigerian banking sector has grown and stabilized significantly over the past ten years, the insurance industry can also adopt some of its ideas and strategies for the growth of the sector.
In order to manage the risk of continuous distress in the banking sector, the CBN in 2012 integrated sustainable business practices into the sector with the prioritisation of Sustainable Banking and Environmental & Social Risk Management. The Nine (9) Principles require the signatories to formally integrate environmental and social risk management into investment and lending decisions, by introducing frameworks to identify, assess and mitigate such risks. While the Principles are consistent with international standards such as the Equator Principles, they are tailored for the Nigerian context and development imperative. They are developed by Nigerians and for Nigerians, which is critical to their successful implementation.
After five years, a survey on the performance of the principles by ThistlePraxis Consulting reveals that about 80% of the signatory banks and the country have realised some form of sustainable benefits from their implementation of the NSBP.
Although the United Nations-backed Principles for Sustainable Insurance (PSI) and the Solvency II, which has become a globally-used standard are in place to ensure a sustainable insurance industry, a tailored framework for local implementation will deliver more sustainable products and services for every insurance sector whilst contributing significantly to sustainable development and poverty alleviation.
Truly, the fundamentals for a thriving insurance industry are in place in Nigeria, with a vast population, an active economy and a well-capitalised industry. In addition, the Nigerian insurance sector is in the right direction to sustainability, through NAICOM’s transformation agenda which has just entered its second phase (the implementation and enforcement of compulsory insurances across the country); the industry has a larger role to play in stimulating the country’s sustainable development.