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Insurance can foster social order in Nigeria 23 Dec 2019

Chairman, Nigerian Insurers Association and MD/CEO, NEM Insurance Plc, Tope Smart

I am taking a break this month from my series on “Tasking Nigerian Government Agencies to Improve Performance” to write on something that has plagued my mind for a while.  
    
On June 28, 2018, a tanker, fully loaded with petrol, had a break failure, collided with other vehicles as a result and exploded on Otedola Bridge, along Lagos-Ibadan Expressway. Never before, or since then, have I read or heard about the level of helplessness expressed by people who witnessed the accident or were caught in the ensuing gridlock. Several lives were lost and about 54 vehicles were burnt. It was a dark day. The atmosphere was clouded with fume, hopelessness and sadness.

In September this year, a three-storey building collapsed in Onitsha, Anambra State. Thankfully, no life was lost. Early last month, two massive blazes engulfed the popular Balogun Market in Lagos Island, gutting surrounding buildings in the market. There have been many more avoidable incidents that have claimed lives and property in Nigeria. Sadly, no matter how many of these accidents occur, we do not learn to be more safety-conscious. Hardly is anyone prosecuted, and compensations are rarely paid. We wail, we shed tears, and we move on until the next incident happens.

We see citizens every now and then using social media and other platforms to raise desperately-needed funds for the medical treatment of ailing family members. While some people are able to raise the required funds, many others aren’t so lucky.  

I am not an insurance expert, but I believe that we can organise and protect our society much better by developing the insurance sector. Insurance has a lot of benefits to society. Unfortunately, a lot of people still consider insurance premiums as avoidable costs. Unbeknownst to them, insurance has a lot of benefits for them and the society in general. It provides financial protection or reimbursement to people against losses. Despite these advantages, it is obvious that insurance is yet to become a culture in Nigeria.

In an article, titled “The Invisible Hand of Insurance,” Hans-Peter Würmli affirms that “the insurance community has failed, in my opinion, to convince the public of the benefits of insurance to society and, equally, legislators have failed to regulate appropriately. The insurers’ skills, knowledge and expertise to design, place and maintain appropriate insurance covers are not recognised adequately by society.”

He is right. In relation to Nigeria, the insurance companies and the industry regulator have not done a good job of promoting the need for insurance. They have also been unable to demystify the misconceptions about insurance.  

The 2019 Nigeria Insurance Industry Report authored by Coronation Merchant Bank (CMB) indicates that Nigeria’s insurance penetration is currently at 0.31 per cent. The report says India, which has a comparable GDP per capita, has an insurance penetration level of 3.69 per cent. Insurance penetration, which indicates the level of development of the insurance sector, is measured as a percentage of premiums in a particular year to the GDP.

The CMB report describes the Nigerian insurance industry as the industry that got left behind. The implication is that the industry has not shared in the growth experienced by other Nigerian financial services.

I do not have any vested interest whatsoever in any insurance company, nor anywhere in the industry. My advocacy is born out a of a great desire to see a more organised and protected society. In a country like Nigeria with its immense needs, insurance has the potential to be of benefit to individuals, organizations and the society at large.

For instance, supposing the petrol truck that was involved in the accident on Otedola Bridge had  a comprehensive vehicle insurance, it would have, perhaps, mitigated the cost of damages. This is because to get such a policy in place would have some due diligence to be taken by the insurance company to make sure the truck was in good shape. It would have been expected that the driver would be competent and have valid driver’s license.

The insurance industry can even take it a step further to ensure that all drivers of vehicles insured would participate in safe driving courses. Moreover, victims in the accident would also have been compensated. Similar evaluation and analysis would have also been undertaken to determine the risks involved in insuring the collapsed building in Onitsha and the buildings that were affected in the blazes in Balogun Market. If adequate due diligence was carried out on the properties, the insurance companies would probably have had their own engineers reassess the properties periodically. In the event of the disasters that occurred, victims and the landlords would have been guaranteed some level of compensation.

The level of chaos in Nigeria is enormous. A major part of this is because adequate safety measures are ignored and statutory provisions are flouted with impunity. Where there is a robust insurance industry, insurance companies could help to reduce the chaos by making sure insured entities adhere to statutory and regulatory requirement.

A couple of weeks ago, a friend called me on the phone to notify me that his poultry farm had been razed by fire. When he told me about the incident, my first question to him was: “Do you have insurance?” “Insurance?” He retorted with a sneer. I realized that, he had a view of insurance companies that is similar among many Nigerians. The low level of insurance penetration in the country is largely due to lack of trust. Many people don’t believe that insurance companies pay compensations for losses.

I agree that there are issues with the industry, chief of which is the trust deficit. However, Nigeria’s insurance industry is growing. New products and innovations are being introduced. We have also seen the entrance of global players like AXA, which bought over erstwhile Mansard Insurance Plc in 2014; and Allianz Group, which acquired Ensure Nigeria Insurance Plc. in 2018. In 2017, Prudential of United Kingdom acquired Zenith Life, Nigeria.

Moreover, a number of reforms are underway to increase the capitalisation of insurance companies in Nigeria. This is expected to increase the underwriting capacity of the insurers.

The insurance industry needs to do more to help citizens understand the benefits of insurance and the need for insurance. Insurance is regarded as an intangible that provides another intangible, in this case peace of mind. Insurance helps reduce social burden. It helps to reduce the burden of uncompensated accident victims.

A Geneva Association paper, “The Social and Economic Value of Insurance,” asserts that “Insurance plays a crucial role in alleviating people’s fear of sudden misfortune by mitigating loss through services and /or financial compensation. By extension, it contributes to the social protection of citizens by enhancing their financial security and peace of mind. It also sends pricing signals that lead to improved risk-resilient behaviour.”

In most developed countries, life insurance has been used to transfer wealth from one generation to the other. In the United States, the life insurance industry is a driver of economic growth and the overall health and financial well-being of U.S. citizens.

Examining the history of insurance, one can deduce that when accidents occurred, there were efforts made to prevent future accidents or reduce the losses due to similar accidents in the future. Property insurance can be traced to 1666, when the great fire of London ravaged more than 13,000 homes. This devastating incident changed property insurance from a matter of convenience to a matter of urgency. In 1681, the first-ever fire insurance company was founded. It is high time property insurance became a matter of urgency in Nigeria.

By the late 19th century, accident insurance had become available. The first company to offer accident insurance was created in 1848 in England in response to the rising number of fatalities on the railway system, according to Wikipedia. The 1911 National Insurance Act gave Britain its first contributory system of insurance against illness and unemployment. This system could be likened to Nigeria’s poorly-run National Health Insurance Scheme (NHIS).

Before the 9/11 attacks in the U.S., there was no market for terrorism insurance. The market for it surged after the terror attacks in September of 2001 to protect against potential losses that could arise due to a terror attack. With all these in mind, it is imperative that we look at the different risks we face daily and see how we can mitigate them through insurance.

Getting a vehicle insurance will get you covered against theft or damage to the car, and the liabilities, which arise due to an accident. A home insurance will typically include coverage for damages to the home and the owner’s belongings. It would sometimes include medical insurance for those in the house at the time of the damage.

All you need is to get the right insurance policy with a good company. For example, a third-party vehicle insurance will not fix your car, but it would fix the damages done to the third party’s vehicle. That is, provided you buy the correct third-party policy. However, a comprehensive vehicle insurance will provide the cover to fix both your car and the third party’s vehicle.

In the healthcare sector, insurance can help mitigate the costs of medical treatment. There are so many insurance companies who now have heath maintenance organizations (HMOs), some of which even include coverage for cost of treatment in other countries. Some policies also include coverage for dental, massage and physiotherapist expenses.

Burial insurance will do us some good in Nigeria. It is interesting to note that burial insurance is a very old type of insurance. It has been around for centuries. It was introduced by the Greeks and the Romans as a way of caring for surviving families and to pay funeral expenses for the dead. The protection that such insurance provides helps the society. A business insurance can allow businesses to replace buildings and inventories in the event of a major accident.

Finally, I would like to recap this article on the significant social benefits of insurance with the words of Sean Kevelighan, CEO of the Washington DC-based Insurance Information Institute (III), who said the insurance industry is at the heart of the growth and progress of every modern economy. He noted, “Most people realize that the insurance industry is the financial first responder – providing much needed recompense after a disaster.”