The crippling effect of poverty on the insurance sector

By ROSEMARY ONUOHA
The poverty level in the country is preventing the insurance sector from assuming its pride of place in the economy; experts are of the opinion that government has a major role to play in bringing about a paradigm shift.

Nigeria, no doubt is blessed with a very large population but the extent to which this huge population has positively impacted on economic development still leaves a lot to be desired.

A large population, according to economic experts, is an advantage to any country even of more advantage is a large population to a country?s insurance sector because insurance thrives in large numbers.

But while it is generally agreed that the Nigerian insurance industry has an enormous market waiting to be explored and exploited, the purchasing power of a large percentage of the population which constitutes the potential market is abysmally low. And this is the dilemma in which the Nigerian insurance sector has found itself.

Poverty has become a household name in Nigeria. Majority of the country?s population, according to the statistics released by the National Bureau of Statistics are poor.

The report said Nigeria?s poverty rate stood at 69 per cent in 2010, while 93.9 per cent of Nigerians considered themselves to be poor in 2010 against 75.5 per cent recorded in 2004.

With a demoralising statistics such as this, one now begins to wonder how? any insurance sector which thrives in line with a prospering population can grow.

While it is generally agreed that insurance has the capacity to boost economic prosperity, experts are of the opinion that the fundamentals that can cause the Nigerian insurance sector to act as economic catalyst are regrettable lacking.

According to the President of the Chartered Insurance Institute of Nigeria, CIIN, Mr. Wole Adetimehin, economic analysts particularly the CBN officials and the people at the National Planning Commission have always come up with different indices. ?In reality can we really match all these inspiring attractive indices to what we have on ground?? Adetimehin queried.

Economic role of insurance

Insurance, according to experts, has a huge role to play in the Nigerian economy. According to Managing Director of Mutual Benefits Assurance Plc, Mr. Akin Ogunbiyi, insurance is the most effective means of reducing the vulnerability of the impacts of disease, theft, violence, disability, fire and other hazards. In life, risk can be handled either by assumption, combination, transfer or loss prevention activities.

Insurance schemes, Ogunbiyi said, utilise the combination method by persuading a large number of individuals to pool their risks into a large group to minimise overall risk. Consequently, where a large number of people cannot be persuaded to pool their risks together due to low purchasing power, the business of insurance suffers.

Insurance protects against unexpected losses by pooling the resources of the many to compensate for the losses of the few, the more uncertain the event the more insurance becomes the most economical form of protection, Ogunbiyi noted.

He explained that the primary function of insurance is to act as a risk transfer mechanism, to provide peace of mind and protect against losses.? However, for insurance to thrive there ought to be a pool of fund to create liquidity which will facilitate quick payment of claims when the need arises.

The challenge

As important as the role of insurance might seem in economic development, the Nigerian insurance sector is largely handicapped to drive the desired economic transformation. According to Managing Director of FBN Life Assurance Ltd, Mr. Val Ojumah, insurance presupposes that one has an income and the fact that the economy is growing at an average of 6.5 to seven per cent does not mean that the larger population is better off.

He said ?Unemployment rate is about 69 per cent.? So many people that should actually be buying insurance products do not have jobs, so where will they find money to pay our premium?? So we have a large population of poor people.?

For Adetimehin, if the level of disposable income is nothing to write home about there won?t be increased demand for insurance products from the public, adding ?So if the industries rather than increasing in number or expanding by the day are shrinking and laying off people, how do you expect the insurance sector to grow. When the level of disposable income is nothing to write home about, where do you expect to find the demand for insurance products?

Managing Director of Custodian & Allied Insurance Plc Mr. Wole Oshin, said that the economy at the moment is not ready for broad based retail insurance business because broad based retail business will actually depend on disposable income.

According to Oshin, not only does retail business depend on disposable income but also on availability of credit.

He said ?Retail business sits on the back of credit business, and if the banks are no longer lending, then retail business is crippled. Abroad where they talk of retail business being very successful it is because everybody there is a debtor, nobody uses money to buy television set, car or do anything.

So you are a debtor to a financial institution and therefore on the back of that the financial institution gets insurance. Here we started that about four years ago? when the banks were getting aggressive and throwing credit cards and debit cards at everybody and inviting people to come and take loans.

If that tempo had continued, by now we will be sitting on a good structure to execute retail business. But all that have been withdrawn, banks are no longer lending, there is no disposable income anywhere.?

The way forward

For the insurance sector to attain its pride of place in the economy,? Chief Oladipo Bailey, former Commissioner for Insurance and Chief Executive of Shepherds Insurance Brokers said that the government? should work towards stability and national unity as a necessary step towards ensuring investment growth, job opportunities and poverty eradication.

According to Bailey, the insurance sector should find out ways and means capable of providing the population with products that will match their purchasing power and living standard.

Oshin on his part called for a banking system that is very strong in retail, stating, ?Once the financial services sector is very strong in retail, the insurance companies will key in on that. We had a lot of lease businesses when the banks were throwing cards at everybody, it was growing, people were getting information from banks to come and get loans. People have easy access to capital but that is not the situation today.?

For Adetimehin, it will be difficult for any sector of the national economy to experience any growth when the basic infrastructure is not receiving due attention year in and year out. ?It is common knowledge that till today the battle to build a stable power supply has not found a solution. There is no way any economy or industry will grow when you don?t have stable power supply,? Adetimehin noted.

Comments are moderated. Please keep them clean and brief.

ghost ship tiger woods masters jet crash virginia beach petrino clayton kershaw fab melo tyler perry