Who needs insurance: The poor or the rich?

To many, one pertinent question begging for a satisfactory answer is: Who should insure? Over time, findings have shown that poor people are vulnerable to risks than the rich. To this end, they need a form of insurance to mitigate risks. Meanwhile, the reg-ulatory body of insurance in Nigeria has prepared the ground to sell insurance to poor Nigerians through microfinance banks and cooperative societies. KAYODE ADELOWOKAN writes

Strategizing means to de-velop a product for the low income earners in the country. It requires a shift from conventional product design to a flexible product development methodology.

At this point, the standard of living of Nigerians and their ways of life generally must be put into consideration.Often time, the language used is always worrisome, whereas the language required must be simple, straight to the point and persuasive enough to gain the minds of the prospective policy holders. At the moment, analysis has re-vealed that at least 20 million Nigerians at the grassroots can be referred to as the potential buyers of insurance service.

Over the years, underwriting firms have ignored this critical sector because it requires coming down so low to the people, a sys-tem that will shift their focus from doing big insurance busi-nesses.

Although companies like Goldlink Insurance Plc and Mu-tual Benefit Assurance, among others, are floating a micro- in-surance to take care of this seg-ment of the society, the majority of insurers are not willing to play in the lower end of the market.

To increase insurance penetra-tion in the country, there is the need to integrate both formal and informal sectors of the economy into the insurance system.

With this in mind, it means using another channel, aside the current insurance companies to sell insurance to the poor. This, therefore, brought about the term micro Insurance, mainly de-signed for the informal market of the economy.Micro-insurance is a low premium approach to in-surance for those at the bottom of the pyramid.

It is described as a conventional insurance sold with small premium amounts per risk.Meanwhile, the National In-surance Commission (NAICOM) sees the opportunities in the mi-crofinance market and has de-cided to channel micro insurance through microfinance banks and cooperative societies.

This is another strategy to bring back the long forgotten coopera-tive societies and use it to sell in-surance to the existing members of the cooperative societies.Ac-cording to the Commissioner for Insurance, Mr. Fola Daniel, co-operative societies and micro-fi-nance banks are the channels through which the commission is deploying to sell micro insurance because they are closer to the grassroots.

Daniel added that the commis-sion is working out a guideline for the sales of micro insurance to poor Nigerians, which will en-able them to buy the insurance at a cheaper rate.He revealed that the commission will license any un-derwriting firm that is willing to partake in the micro insurance business, while its products will be sold through cooperative soci-eties and microfinance banks, among others.

The aim, the insur-ance boss said, is to enhance in-surance penetration, especially in the rural areas, where underwrit-ing firms have done little to cap-ture. “It is equally expected to incorporate those who are unable to buy the traditional insurance into the insurance system”, he added.With about 20 million po-tential subscribers, NAICOM has estimated N60 billion as the sum expected from micro insurance products through microfinance banks.

In his reaction, the chief consult-ant to NAICOM on micro insur-ance, Mr. Yemi Soladoye, noted that there is the need for collabo-ration between the Central Bank of Nigeria (CBN) and NAICOM to sell micro insurance through microfinance banks in Nigeria, adding that microfinance market had a lot of potential customers of micro insurance products.
Soladoye revealed that about two million people are currently micro insurance policy holders, adding that because the poor are more vulnerable to risks, they need insurance more than the rich.

He said 75 per cent of Nigerians living in rural and semi-urban areas are “a ready-made market” for micro insurance to thrive.In his word; “This is an avenue to sell micro insurance. The product will penetrate areas where the tra-ditional insurance products can not get to. That is why it is a good platform to increase insurance penetration in the country. Any policy that is below N3, 000 is categorized under micro insurance and with 20 million microfinance customers, a sum of N60 billion is being projected”.

An insurance expert, Mr. E.O. Farinu, said to develop a particu-lar product for the low income earners in the country, it requires a shift from conventional product design to a flexible product de-velopment methodology.Farinu said considering the economic status of some Nigerians is para-mount. In other word, the stan-dard of living and their ways of life generally must be put into consideration.He stressed that micro insurance products are de-signed to be appropriate for low income markets in terms of cost, contract terms, coverage and de-livery mechanisms.

The specific market focus of micro-insurance, he said, re-quires a specialized product de-velopment process.

The product development process is continuous and designed to ensure that appropriate products get delivered to the market in an effective manner and are monitored for potential improvement.

Mr. Farinu added that it is im-portant for any institution float-ing micro insurance to understand the demand and dy-namics of the grassroots market and look for suitable supply channels to deliver these prod-ucts.

He added that traditional agents can sell micro insurance, but must do so through MFIs, NGOs and separate agent staff or through their own subsidiaries.In the same vein, the Chairman, Na-tional Association of Microfi-nance Banks (NAMB), Southwest zone, Mr. Olufemi Babajide, said proper administra-tion of micro insurance services to MFBs would reduce loan de-faults and that it would also gen-erate more incomes for the adop ting micro banks.

Babajide also said that proper administra-tion of micro insurance services would also safeguard the invest-ments of microfinance banks in the area of lending. “For in-stance, we always give loans to poor people and if their busi-nesses suffer mishap, it will affect their repayment flow; hence, re-covering the loan is always diffi-cult. With micro insurance, we are assured that our money is safe be-cause if our customers suffer fire-outbreak, theft, among other risks, the underwriting firm is there to compensate them; and as a result, they can repay their loans,” he added.

The NAMB Chairman said that this move would increase the credibility of the adopting MFIs, stating that, “If customers can get compensation when disaster oc-curs, the bank will take the praise”.Although he said insur-ance is not new to some MFBs, as they offer insurance advisory services, he implored MFBs to tap into the opportunities afforded by insurance.

The Southwest NAMB Chair-man, Mr. Olufemi Babajide, how-ever, charged insurance companies in the country to come up with simplified insurance prod-ucts and services that will be af-fordable to microfinance clients, taking into consideration several factors in the market they want to play in.Mr. Femi Babajide de-scribed the micro insurance as a positive development, adding that MFBs would embrace it.

In his contribution, the Managing Direc-tor, LAPO Microfinance Bank, Mr Godwin Ehigiamusoe, said be-cause the poor are more vulnera-ble to risk and that its impacts are always severe on them.Ehigiamu-soe said, “While a financially comfortable person can access medical care at any time they want, the poor cannot; and at the end, may result in death from a disease that can be prevented.”

“For example, a fire outbreak in the market place can wipe out the entire assets of a poor man; but for a rich person, he has others to de-pend on. So, those who really need insurance services are the poor because of their vulnerabil-ity. Their micro businesses are equally vulnerable. So, they need to be protected with insurance services”