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The World Bank SDGs’ and ranking of countries with highest and lowest contributions of the insurance sector to SDG goals’ attainment provided the focus of this article and the near pyrrhic this-is-it for me and my country. On the first glance of this ranking, it looked like Nigeria sits atop the international ranking and I thought this presents, at least, one moment to gloat and brag for sake of the country and patriotic pride. Indeed Nigeria is actually the first on that ranking table displaying an overdose of reds on all metrics of the SDG indices.
Nigeria led as the leader of the laggards. A clear first from the bottom up.
In a June 2021 report, “Insurance Sector’s Contribution to Sustainable Development Goals (SDGs”) authored by Susan Holliday, Inna Remizova and Fiona Stewart, the three authors noted, “Insurance is an important part of the financial sector. It supports broader economic and general well-being in developed economies in a way that is so entrenched and accepted that it is not widely recognized.” The authors are leading experts at World Bank’s Finance, Competitiveness, and Innovation (FCI) Global Practice.
The assertion by the authors is true regarding the entrenchment and acceptance of insurance in developed economies. But that is not the case with most African economies including Nigeria. However, it is inexcusable that Nigeria with the size of its economy should have its insurance contributing the least to the Sustainable Development Goals.
The entrenchment and wide acceptance of insurance in the economic and general well-being of the people in Nigeria is a goal that must be pursued by the next government to broaden the scope of the economy and reduce dependency on the State.
Our country’s overall performance on the global SDG dashboard is abysmal. Viewed from the lens of insurance contribution to this performance, it would be correct to say, we are non-starters. But we must get our insurance act together by seeing the opportunities for development in the report and thus, filling the gaps in the economic framework and policies driving inclusive growth.
With an overall 2020 SDG score of 49.3%, well below the 70% pass score, Nigeria’s SDG stage one insurance contribution dashboard shown in ‘red’ indicates that ‘major challenges remain’ with the indices. SDG 1, 2, 3, 8, 10 and 11 are all in red and classified as countries where significant progress is still needed to meet SDG goals.
Insurance is seen as having a stronger impact on, No Poverty (SDG1), Zero Hunger and Food Security (SDG2), and Decent Work and Economic Growth (SDG8), whereas SDGs where insurance achieved significant impact included, Climate Action (SDG13), as per its role in disaster risk financing, Safe Cities and Communities (SDG11) in its investing and underwriting of infrastructure projects.
Insurance does significantly contribute to Good Health and Wellbeing (SDG3) by helping reduce out-of-pocket expenses and encouraging the use of healthcare facilities. Study and tracking are still ongoing to see how through insurance inequality (SDG11) can be reduced.
Nigeria’s insurance penetration is about the lowest in the world at 0.33% and less than 1.3% by the global average. The insurance penetration rate is the ratio of premiums written compared to the country’s GDP. Of the nearly half trillion GDP and probably still Africa’s largest economy, insurance accounts for less than 1%.
However, the weak economy provides the best opportunities for growth and so also is the potential for the development of the insurance sector. The financial development index, government effectiveness and regulatory quality show promise that the market can grow if it is properly incentivized.
Interestingly, countries with high levels of insurance penetration have made the most progress in meeting their SDG commitments. In contrast, countries with lower levels of SDG attainment (and mostly low-income and lower-middle-income countries) have low levels of insurance penetration.
“Insurance can play a significant role in helping countries achieve the UN SDGs in terms of economic growth, social inclusion and environmental protection. This can be achieved through the risk transfer mechanisms of households, businesses and the public sector.”
Since 1945, Nigeria has legislated at least four additional compulsory insurances. Up till now, the oldest law, the Third-party Motor Act has achieved about tenth compliance and subscription. The processes for integrating compliance into economic activities is not in place. Perhaps, if there is sufficient interaction between insurers and national digital policy, there could be welding together of these pieces of legislation into enforceable policy. Aside from these compulsory laws embedded into the Insurance Act and other related laws, there is no insurance policy at either the national level or the state.
Case for National Insurance Policy
A national policy on insurance would have ensured that all the legislations on insurance are integrated within the process of economic activity. There is the group life insurance, school shuttle, and employees’ compensation. Buildings/construction, and import/export trade insurances are also compulsory. There is also health insurance which drives universal access to healthcare. Local content provisions of the Cabotage Act in the onshore maritime transportation as well as the oil and gas business. These can be strung together as unavoidable insurances for each sector which warehouses the law.
Therefore, the responsibility lies with the National Insurance Commission (as regulator and representative of government) and insurers in Nigeria to make the case for supporting insurance market development by drawing more attention to contributions the sector can make to achieving national SDGs. This effort may draw investors, donors, and international organizations to focus their insurance market development activities where the greatest potential for attaining SDG goals is provided.
Ahead of 2023 expectations of a new government, a starting point for this to evolve would be at the economic management team at the national level. There should be an insurer representation in the team. Insurers should organize to drive this important inclusion and cascade it down to state levels gradually. Insurance cannot grow in isolation but can only flourish under an environment of economic development that it supports and sustains.
Undoubtedly, strong micro, small and medium-scale enterprises (MSMEs) is the incubation hub of a vibrant economy as well as provide sustainable insurance development. However, the MSMEs have suffered greatly and virtually collapsed under heavy inflation, hostile exchange rate regime, unsupportive port operations and a host of other economic environment factors that had rendered the sector comatose.
Regulatory Framework to support Insurtech
Digital technologies are now being deployed to drive everyday insurance like motor and health insurance. They are embedded in such a way that their uptake is guaranteed and premium and claims payment are convenient to both buyer and supplier respectively. This new activity is called insurance technology or Insurtech. It is targeted at the underserved of population and makes use of non-core insurance principles to deliver products. The channels of distribution are evolving worldwide in most emerging markets. Nigeria, with one of the lowest levels of insurance penetration, would need digital assets to reach more people.
To achieve this would require a regulator who can adopt the International Association of Insurance Supervisors (IAIS). The question now is whether the Nigerian insurance regulator is prepared. Fortunately, some activity is ongoing in this direction. Nevertheless, the regulator can demonstrate a stronger willingness to adapt by setting up a new digital directorate manned by persons with relevant digital skills and knowledge to drive Insurtech quickly. Noting may be achieved by tucking away this evolving tool and the possibility it holds as the future of Nigeria’s insurance development. The IAIS issue paper on the ‘Use of Big Data Analytics in Insurance” is reference material for regulators and new digital entrants.
Christian Henning of South Africa’s Reserve Bank agrees with this thinking when he urged supervisors at A2ii’s Public Dialogue on SDGs to “upskill on the goals, to have a greater understanding of how they relate to the financial system and plug gaps in knowledge and data either through enhancing regulatory data or by instigating national repositories”.
Besides helping to develop a digital framework for the regulator, this directorate would initiate and husband the integration into the financial system of the numerous legislations pointed out in this article and present this to the government and the stakeholders. Fortunately, IAIS and A2ii (Access to insurance initiative) have been collaborating on advancing inclusion in this aspect. On the same table with these two are the Sustainable Insurance Forum and Insurance Development Forum.
Good Governance
Good governance is a necessary precondition for insurance to grow when considering that confidence is key to the insurance contract because they are typically long-term. An environment which guarantees stability in the macroeconomic framework under which insurers operate is absolutely required.
Government effectiveness as a World Bank’s measure of the quality of public and civil service captures the perceptions of institutions and the degree of their independence from political pressures. In addition, “the quality of policy formulation and implementation, and the credibility of the government’s commitment to such policies” are components of governance that viewed from the prisms of SDGs, further dips Nigeria’s performance.
In conclusion, the government of 2023 and beyond should constitute an economic team that harvests the repository of risk management and insurance knowledge in the country to build a sustainable economy. It is no longer debatable that high-income countries also have strong insurance. Beginning with existing legislations, technology and public education can combine to integrate insurance into the social and economic activities of our people.