TUNDE AJAJA examines how poor life insurance penetration, aided by ignorance and citizens’ low per capita income, may be contributing to the nation’s poverty level, especially the rate at which people slide into poverty when their breadwinner dies or becomes incapacitated
Mrs Eunice Komolafe gave a wry smile as she settled into the chair reserved for her at the other end of the table. It was a very sunny afternoon in the Igando area of Lagos; she wiped her face on the back of her hand and for a moment savoured the coolness of the restaurant. She’s 42, friendly, polite but dazed.
From living as a family in a decent three-bedroom apartment in a serene neighbourhood in the Federal Capital Territory, to funding the education of four children in good schools and having the basic good things of life at their disposal, her lofty dreams of a lasting, blissful union with her darling husband had begun to manifest, until his tragic death.
The accident he was involved in snowballed into a gradual, painful death that also drained his entitlements and their savings altogether. Since then, the mother of four said each day had been full of struggle and the future suddenly became uncertain. “Things went on fine up till when he had that accident,” she recalled. “We lived in Abuja then.”
From losing all their valuable belongings when they were kicked out after their rent expired, to their children being out of school and now constrained to relocate to a room in a tenement in Iba, a Lagos suburb, her story fits conveniently into the narration of sliding from comfort to poverty.
“We didn’t leave Abuja with anything. Our property was left outside because we didn’t have a place to keep them, so they were destroyed by rain and sun,” she lamented.
Now a poorly paid primary school teacher working all day to feed, clothe and house her children, with no in-laws but a few siblings who occasionally help with their widow’s mite, life has become very harsh. “Things have been hard the way we never imagined,” she said, trying to be strong. “My children are young but they are growing, so we are choked in that little space.
“We have just one mattress, so they are usually lumped in with one another on the bed while I sleep on the floor. I’m always awake, thinking of what has become of us and if we will ever get out of this. I work from morning till evening for us to feed and pay our bills and due to stress I started having chest pain so I stopped. But I had to start again because of important bills like school fees that I had to pay. Things are really hard.”
Generally, the death of a loved one is harrowing, but having to deal with survival whilst grieving seems like double woes. Regrettably, this is the reality of many, especially widows, in Nigeria, whereby dependants slide into poverty once the breadwinner, usually the man, dies or becomes incapacitated.
This is even worse in the rural areas, where primitive cultural practices are still rife and widows are sometimes denied access to their late husband’s belongings or sent packing. This disruption occasioned by the death is however made worse by the extremely low life insurance penetration in Nigeria.
Interestingly, all that become Komolafe’s burden are insurable risks that a life insurance policy would cover; from children’s school fees to house rent, livable income for paying bills, feeding and other necessities.
If her late husband had a life insurance policy, survival would not have been this difficult for his wife and their four children. “If he had life insurance, it would have helped, maybe with the children’s school fees and house rent and we may only be concerned with feeding until we stabilise and things start to improve, but he didn’t have and we never discussed it,” she affirmed.
She went silent, rubbing her teary eyes as she took a moment to regroup. Then, a note of regret entered her voice as she continued, “This is the worst environment my children have ever known. I wish to move to a bigger space, maybe a one bedroom apartment but it can’t be now because I can’t afford it; their education is a priority.”
Thoughts of the pleasant moments they had as a family seemed to flash through her mind regularly, as she momentarily gazed into the ceiling ahead. “Sometimes I call people to help before we can eat, especially when I’m not paid on time; my in-laws also deserted us,” she said quietly, trying to fight back tears.
This experience is heartbreaking and common. Across the country, the instances are limitless.
For example, following the October 2020 #EndSARS protest that led to the killing of no less than 100 persons, including 43 security agents, mostly breadwinners of their homes, life has been somewhat unexciting for their widows. They mostly rely on government palliatives and donations from individuals to feed, pay their rent and keep their children in school, which are all insurable risks if their late husbands had life insurance policies in place.
For example in Oyo State, one of the states hit by the crisis that followed the protest, one year after the incident, the widows of the five policemen killed in the state lamented profusely the hardship their husbands’ death had subjected them to.
Mrs Esther Alidu, one of the widows, told Saturday Punch that her two children currently in Nursery One and Primary One respectively could not continue schooling in the just concluded term because she had no money to pay their fees.
“Things have not been easy but I thank God. My children could not go to school this term because there is no money to pay their fees. Also, we are still awaiting the fulfilment of the scholarship promised by Governor Seyi Makinde. My children’s education is the most paramount to me now and I pray God will send help to those of us affected.”
The widow of Mr Peter Abegunde is also having a hard time meeting her needs and only concrete intervention could assuage her despair. Evidently troubled when she spoke with our correspondent on the phone, she stated, “Things have been bad and we are only hoping on God. Life has not been easy at all. We have not heard from the state government concerning their promise, including the scholarship they promised, but when there is life there is hope.”
The stories, laced with pity, are somewhat related but respectively disturbing. Mrs Tokede, a trader and widow of late Adegoke Ajibola, one of the officers killed in Oyo State, said family members had been supportive.
Half of her husband’s entitlement given to her could only do little; the other half went to her in-laws. “The governor promised us scholarship (for the children’s education) but it has not been fulfilled.” In some states, the government gave cash gift to the dependants, but it was only be a drop in the ocean.
Given the absence of life insurance, worsened by poor social welfare for such persons and harsh economic realities that deprive many from earning livable incomes, the journey to poverty for many dependants when the breadwinner dies is simply a stone’s throw away.
The poverty rate in Nigeria is disturbing, at about 40 per cent, which implies that over 80 million persons are poor. The World Bank said in June 2021 that seven million Nigerians were pushed into poverty in 2020 and in yet another report in December, it said 20 million more Nigerians might become poor by 2022.
As of last year, it gave the dependency ratio in Nigeria as 86 per cent, which highlights the extent of the multiplier effect the death of a breadwinner could have on the many dependants.
Life insurance in Nigeria
Despite being the biggest economy and most populous African country, insurance penetration in Nigeria is incredibly low, at about 0.5 per cent, one of the lowest in the sub-Saharan Africa and the 79th in the world, coming behind African countries like South Africa (having about 70 per cent of the total African market share), Kenya, Namibia, Egypt, Tunisia and Algeria.
Many insurance experts and economists have described Nigeria’s insurance penetration as poor, grossly inadequate and unfavourable given the extent to which insurance could drive the growth of the economy.
PricewaterhouseCoopers, in its GDP analysis of the fourth quarter of 2020, pointed out that despite being one of the underperforming sectors of the Nigeria economy, insurance remains an important part of the financial system, given the role the sector plays in loss mitigation, risk management and business stability.
Remarkably, however, the National Insurance Commission’s latest report of 2019 showed that to even get to that level, gross premium income in the life insurance sector grew from N90.9bn in 2015 to N226.8bn in 2019, accounting for 44.6 per cent while the non-life sector accounted for 55.4 per cent.
NAICOM tied the growth of the life insurance sector largely to individual life business and the continued growth and popularity of annuity business, which some prefer to call retirement funding, like the mandatory contributory pension scheme for workers in the formal sector. This perhaps explains why survival could be harder for those in the informal sector when the breadwinner dies.
While that seems like a ray of hope, a report by Brookings, an American research group, showed that African countries like South Africa, Morocco, Namibia, Kenya and Egypt have higher life insurance premiums than non-life. Invariably, these countries are lower on the poverty index unlike countries, like Nigeria, that have higher non-life insurance premiums than life.
From interactions with affected families, the kind of hardship dependants of many deceased or incapacitated breadwinners face could be so overwhelming that even when government assists with some cash gifts, they are constrained to ask for more.
When on December 1, 2021 the Edo State Government gave N1m each to the families of four policemen, including a Divisional Police Officer, Rufus Kosemani, killed by gunmen who attacked the Afuze Police Station, the wife of the DPO, Mary, said at the event that she has four kids and was hoping to get more compensation. “I, however, commend the state government for fulfilling the promise they made to us,” she added.
Similarly, Harrison, the eldest son of one of the slain policemen, Isaac Sadoh, thanked the government for the gesture but said he expected more because he had been taking care of his six younger siblings since they lost their dad.
In its 2020 Poverty and Shared Prosperity Report, tagged ‘Reversals of Fortune,’ the World Bank Group highlighted the importance of insurance for sustained standard of living, saying poor people’s vulnerability reflects a lack of access to institutional resilience mechanisms such as social protection, insurance and credit.
It said, “A focus on poverty and shared prosperity also implies investing in preparedness and prevention measures at the household level. Since their inception in the 1500s, social protection programmes in the form of cash transfers, basic insurance and identity registration have been called for on the grounds that they provide assistance to vulnerable populations during good times and bad.”
Why Nigerians shy away from life Insurance
Industry experts ascribed the low insurance penetration to ignorance, distrust in insurers, low per capita income, harsh economic realities that erode people’s disposable income and religious beliefs, in which case people rebuke negative future possibilities rather than being insured against them.
Low insurance penetration cannot be completely divorced from the level of poverty in Nigeria, says the Nigeria Insurers Association. Its Head of Corporate Affairs, Davis Iyasere, tied the low penetration to people’s ignorance about insurance, saying, “If people embrace life insurance, their dependants can continue to maintain the same standard of living they had when the breadwinner was alive.”
Speaking to the perception by many that it is expensive, he blamed it on ignorance, saying, “So many are ignorant of its intrinsic and economic values, but some people tend to appreciate seeing someone who has benefitted from it.”
Similarly, the Executive Secretary, Nigerian Council of Registered Insurance Brokers, Mr Fatai Adegbenro, said the death of a breadwinner often created a vacuum, whereas a life policy could have provided succour for the dependants.
“Our penetration is less than one per cent, so there is a link between that low penetration and the rising poverty because insurance is one sector that keeps people and businesses going, most importantly in times of shocks.
“We need to address the ignorance factor because you hear people say ‘death is not my portion by the grace of God.’ Also, insurers must provide value, but it is very necessary for people to embrace life insurance for the sake of their dependants.”
Other industry experts pointed out that life insurance could considerably reduce the risk of a family sliding (further) into poverty after their breadwinners’ death, especially those in the informal sector, since no system compels them to do the type of contributory pension like in the formal sector.
“However, poverty itself is another factor,” said one of the experts, Alake Adesina. “Don’t forget that millions of Nigerians are poor and they live below the poverty line, so people who have yet to have decent meals would likely not think of insurance. They would rather focus on survival and that is why people only do the compulsory ones.”
He added, “You could be hesitant in getting your house insured against fire because you feel the money would be a waste if you don’t have any fire incident, but it is generally believed that everyone will die and there will always be dependants, so I’m of the view that life insurance is even better. That is why many developed countries have higher life premiums than non-life.
Life insurance as solution to rising poverty
Experts noted that despite the poverty level, more Nigerians could still afford life insurance as it is flexible and customers could set their insured sum based on their capacity. “No matter how small, it will help the dependants when the time comes and the coverage can be negotiated,” Adesina added.
The United Nations Conference on Trade and Development and the United Nations Development Programme in a joint report titled ‘Economic functions of life insurance’, stressed that life insurance helps to guard against disruption of earnings for dependants so that a breadwinner’s partner, children and other dependants could be in the same economic position they would have been if the person was alive.
The Managing Director, Enterprise Life Assurance Nigeria, Limited, Mrs Funmi Omo, told our correspondent that poverty and low levels of economic development are typically associated with low insurance penetration, which explains the Nigerian situation.
She added, “Also, lack of awareness, cultural and religious norms cause a barrier in how insurance is understood. In the event that a breadwinner falls ill or dies, the family should not be left completely helpless, with nothing to fall back on. Insurance helps to cover such risks.
“But we cannot talk about the relationship between insurance and poverty without mentioning that stakeholders at various levels have a role to play. Over the years, experts have debated the role of micro-insurance in providing an innovative way to combat poverty. It is crucial that everyone has some level of cover and the vulnerable population should not be left behind.”
She called on the government, religious organisations and cultural icons to boost the awareness of insurance. “The government can institute insurance policies to address the needs of different segments of the population,” she added.
Similarly, a regional insurance expert and former Vice Chairman, Sanlam Pan Africa, Junior Ngulube, told Saturday PUNCH that “There is indeed a nexus between high life insurance penetration and reduced levels of poverty”, but that the key driver of insurance purchase in a country is growth in disposable incomes.
He added, “African countries with high per capita incomes tend to have higher insurance penetration. Countries like Mauritius with $9,640 per capita income; Botswana, $7,820 and South Africa, $5,440; will have high insurance penetration, while Nigeria with the largest Gross Domestic Product in Africa but $2,300 per capita income has low penetration.”
Indeed, in March 2021, PricewaterhouseCoopers said in its 2020 GDP Q4 analysis that the insurance sector bleeds from weak disposable incomes. Quoting the National Bureau of Statistics, it said the sector underperformed at -3.63 per cent within the period.
Therefore, as per capita income grows, insurance penetration grows and poverty would in the same vein drop, Ngulube declared. “More importantly, claims should be met quickly and fully when they occur so as to build trust in the insurance products and insurance companies. That way, life and other types of insurance will increasingly become mainstream products and assist in reducing poverty,” he added.
Another expert, the Directeur General, Assuraf, Souleymane Gning, who spoke alongside Ngulube at the Africa CEO Forum in March told our correspondent in an interview that the issues militating against insurance penetration include lack of trust in insurers in terms of clarity and claims settlement, affordability, access and culture.
He added, “When we talk about life insurance, there are a lot of obstacles to it in our region but the first thing is religion. We are very religious and we tend to believe that everything related to death should be in God’s hands. That idea of leaving death to God leads us not to plan about what would happen when we die.
“The second perspective is solidarity. People tend to help each other a lot and we always feel we can count on our communities to help but it’s not efficient or guaranteed. Life insurance is well embraced in many developed countries because they appreciate its benefits, they have the margin to put money aside and the capital is tax incentivised.”
“I believe we need to provide life insurance products with a small premium, maybe for as low as #1,000 which is quite affordable monthly so that if the person dies, the beneficiaries would have something to start with. We need to make it accessible.”
He said while low per capita income is a factor, poor countries need life insurance more because the chance of dependants sliding into deeper poverty is higher. He added, “That is why you need to have it in place, so when you are no more, your dependants won’t suffer; your kids won’t drop out of school, their rent would be guaranteed and there would be food on their table before they find a way out.”
“For a long time, I think we we didn’t take time to refine and adapt the insurance products we inherited through colonisation to our peculiar lifestyles. However, Africans should embrace life insurance so that if they are no more, their contributions would cover those left behind. It is more important because we don’t have a system where the state pays your rent and your bills for years, if necessary.”
It would seem Nigeria, and by extension, would need to rev up its insurance to save the continent from deeper poverty. According to Brookings, Africa’s aggregate insurance penetration rate of 2.78 per cent in 2019 compared to the global average of 7.23 is low.
Notably, as of 2020, among the countries with some of the highest life and non-life insurance penetration, only South Africa made the list of top 14. Taiwan had 17.4 per cent; South Africa, 13.7; United States, 12; South Korea, 11.6; United Kingdom, 11.1; Canada; 8.7; France, 8.6; Italy, 8.6; Japan, 8.1; Germany, 6.8; Australia, 4.7; China, 4.5; Brazil, 4.1 and Mexico, 2.6.
Enabling a better insurance sector to reduce poverty
At the summit, with the theme ‘Insurance: How to (finally) win over African consumers’, industry experts proffered solutions to the challenges facing the insurance sector.
Ngulube advised insurers to take advantage of the cheaper and easier means of distributing financial services products like insurance that digital technology offers, given the high adoption rate for mobile phone technology.
He added, “Legal expenses insurance is one of the most popular products in South Africa, even among the poor. Why? Because under apartheid, a black person could be arrested for anything at anytime, so you needed your lawyer on speed dial. You cannot sell that policy to other countries on the continent because the need was simply not there. Therefore, insurers must design products to meet specific needs in their countries.”
Also, Gning described insurance as a big leverage for the economy of a country, adding, “More than half the population in Africa is under the poverty line and they simply cannot afford most of the insurance products that are being offered. So, we can consider micro-insurance.”
The Deputy General Manager, AXA Mansard Insurance Plc, Ms Rashidat Adebisi, also advised insurance companies to listen to their customers and design insurance solutions that meet their needs. “We have been able to cater to the higher end of the market but we haven’t reached the middle and low income earners, who truly need protection and it’s worsened by the absence of safety net and social security,” she added.
Also, the Head Insurance for Africa, Boston Consulting Group, Tijsbert Creemers, said there was the need to develop valuable solutions tailored to the prevalent frictions and needs of customers, create low-cost access, increase financial inclusion and develop low-cost digital distribution.
The Group MD/CEO, African Reinsurance Corporation, Corneille Karekezi, warned that if the government did not prioritise the development of the insurance sector like other sectors, it would end up being the only last resort when there is catastrophe. “Insurers also have to create the demand, else we will keep creating products that customers won’t patronise,” he added.
Similarly, Omo advised, “Insurance companies would need to tailor insurance products to match local realities and with the uptake of mobile technology, insurance companies can leverage new distribution channels to reach various segments of the population.”
PwC however called on the government to resolve the structural bottlenecks inhibiting the growth of the insurance sector, else it would continue to be hamstrung by the challenges that have plagued it for years, including rise in prices that weakens disposable incomes.
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