Poor Knowledge of Relevant Laws Hinders Low Insurance Penetration

Stakeholders and lawyers have identified factors responsible for low insurance penetration and lack of confidence in the sector by Nigerians.

Top among the factors is poor knowledge of insurance law and services by Nigerians.

A senior Advocate of Nigeria, Omogbai Omo-Eboh at a recent conference organised by Insurance Publication Limited in collaboration with Centre for Financial Journalism held in Lagos, stated that there was need for journalists to give accurate and factual reporting of financial matters to Nigerians, especially on insurance matters.

Omo-Eboh addressed the spate of losses incurred by people during tragedies.

Some of those losses, he stated, could be the aggregate of what people had worked for over the years.

Citing a typical example of a market that got burnt with goods and services, the lawyer said traders were often left with nothing because they didn’t insure their products.

Stating that the primary aim of insurance was to obtain an indemnity to the full extent as prescribed in the policy and permitted by law in the occurrence of an insured loss, Omo-Eboh decried the rate of insurance penetration in Nigeria (0.5 per cent as of March 2022 according to a report), as being one of the lowest in Africa.

Several reports have also revealed that only about 3.4 million out of the 12 million cars on Nigerian roads are insured.

Explaining some of the reasons for the poor insurance culture in Nigeria, Omo-Eboh mentioned that Nigerians lacked trust in the insurance companies and also had no knowledge of insurance services.

These problems, according to the lawyer, could be remedied by using the media to educate the people and convey the benefits of insurance as the best mitigating factor to most risks encountered in man’s existence.

“Current statistics, as seen above, show that less than one per cent of Nigerians have any kind of insurance. A combination of illiteracy, ignorance, poverty and religious/cultural beliefs is largely to blame for this. Insurance companies are encouraged to develop and specifically market micro-insurance products for the less affluent members of society, as is being practised in other developing countries.

“There is a niche market in this area and power should be given to the commission not only to license insurance companies but also the informal sector, such as co-operative societies and trade associations, who desire to engage in micro insurance business, as they are nearer to the grassroots,” Omo-Eboh stated.

He encouraged the insurance companies to liaise with journalists to inform the public about the bouquet of insurance products available to cover personal and commercial risks, the cost and process of obtaining one, as well as to demystify some of the myths surrounding insurance in Nigeria.

Omo-Eboh added that apart from relying on the breach of policy conditions, non-disclosure and misrepresentation to escape liability, insurers often exhibit a general apathy when called upon to settle claims.

Cases, according to him, abound where insurers took no steps either to repudiate liability or settle a claim after receiving notice of claims.

In some cases, he said, the insured was only aware that liability was contested after a writ had been issued to compel the insurer to pay.

The lawyer pointed out important provisions in the Insurance Act, 2003 stipulating time limits in which claims should be settled.

Section 70 of the Insurance Act, 2003, which provided a time limit of 90 days within which the insurer should settle a claim where it accepted liability or disclaims liability in writing stating its reasons within the same period, was one of such provisions, said Omo-Eboh.

“The Insurance Act 2003 makes some types of insurance compulsory in Nigeria. These, together with other types of insurance made compulsory by other laws, are considered here. Journalists can play a crucial role by enlightening the public and government to comply with these provisions and ensure adequate enforcement of the provisions. Unfortunately, it is the government that is most guilty of the non-observance of these provisions.

“Section 64 of the Insurance Act of 2003 provides that no person shall cause to be constructed any building of more than two floors without insuring with a registered insurer his liability in respect of construction risks caused by his negligence or the negligence of his servants, agents or consultants which may result in bodily injury or loss of life to or damage to property of any workman on the site or of any member of the public. Owners must, therefore, bear this in mind when executing construction contracts so as to place the duty to insure on the contractor.

“‘Section 65(1) of the Insurance Act 2003 stipulates that every public building shall be insured with a registered insurer against the ‘hazards of collapse, fire, earthquake, storm and flood.’ Under section 65(3) the insurance policy made compulsory ‘shall cover the legal liabilities of an owner or occupier of premises in respect of loss of or damage to property or bodily injury or death suffered by any user of the premises and third parties.’

“The Motor Vehicles (Third Party Insurance) Act 1950, which is the oldest insurance law in Nigeria, provides for the compulsory insurance of third party liability for the death of or bodily injury to any person caused by or arising out of the use of a motor vehicle covered by the policy.

“The compulsory insurance of third party liability for death or bodily injury arising from the use of a motor vehicle is extended by section 68 of the Insurance Act 2003 to third party property damage. The insurance taken out pursuant to the provision shall cover a liability of not less than N1m. This limit was recently increased to N3m by the insurance companies following the recent approval of an increase in the premium payable for third-party liability motor insurance from N5,000 to N15,000 per annum for motor cars,” Omo-Eboh said.

Also stressing the need for life insurance, the lawyer said the Pension Reform Act 2004 established a contributory pension scheme for all categories of employees in Nigeria by which both the employer and the employee contributed a percentage of the employee’s monthly emoluments to a pension scheme administered by a licensed Pension Fund Administrator for the payment of retirement and other benefits to employees in Nigeria.

Omo-Eboh said: “In addition to the monthly contribution, section 9(3) of the Pension Reform Act provides that “employers shall maintain a life insurance policy in favour of the employee for a minimum of three times the annual total emolument of the employee, thereby making life insurance on all employees to which the Act relates compulsory.

“Furthermore, section 73 of the Insurance Act 2003, which was passed before the Pension Reform Act 2004, provides that for the purposes of security and the protection of the interest of beneficiaries of retirement and pension schemes, such schemes shall be adequately insured with an insurer registered under the provisions of this Act, and it shall be the sole responsibility of the insurer to protect such funds for the absolute benefit of such beneficiaries.”

Another speaker at the seminar, Prof. Tajudeen Yusuf, who spoke on, ‘Marketing insurance for financial inclusion in Nigeria: Gaps and opportunities,’ stated that financial inclusion was a broad terminology that referred to decisions and actions taken to democratise finance by ensuring that every individual and corporate entity had access to financial products and services irrespective of their net worth, size, gender and/or location.

According to the Micro Insurance Network, inclusive insurance was targeted at about 6.5 billion people in the world who are vulnerable to sickness, job losses, business premises destruction or damage by floods or fire.

Yusuf said: “There is a huge gap between losses to life and property that are insured and those that are not.

“This is known as the protection gap. This gap was estimated by Swiss Re Institute at an annual value of $1.42tn, being the economic value of health care, untimely death and climate disasters.

“The real concern is about the 1.8 billion people that are very poor – they do not have enough to eat.

“Add this to another 4.7 billion people that are not extremely poor but are highly vulnerable and that makes up the figure of 6.5 billion people that are generally referred to as low-income, emerging insurance customers and bottom-of-the-pyramid.

“While governments and insurance regulators will worry about insurance penetration and contribution to GDP, the real challenge in this is the insurance practitioners who have to develop products that will effectively address this massive protection gap.”

Dr Isah Momoh, in his presentation during the seminar, emphasised insurance as an indispensable aspect of a nation’s financial system.

He explained that financial systems influence savings and investment decisions through lowering the costs of researching potential investments, exerting corporate governance, trading, diversification and management of risk, mobilisation and pooling of savings, conducting the exchange of goods and services, and mitigating the negative consequences that random shocks could have on the economy.

He, however, said the
level of insurance market activity which should be commensurate with Nigeria’s huge potential had not been attained.