As one of the most developed countries in Africa, Nigeria has clear and strong economic potential.
Independent from Britain for more than half a century, its 177.2 million citizens make it the eighth most populous country in the world, with about one sixth of the continent鈥檚 total population.
Nigeria鈥檚 economy, underpinned by oil (the country is the world鈥檚 10th largest oil producer), is currently the largest on the continent 鈥搇arger than South Africa鈥檚. Over the past five years, trends have been positive: overall economic growth for the country has been rapid 鈥 6% to 8% annually 鈥 higher than that of the continent as a whole, the fast (4% a year) urbanisation trend, and with it middle-class growth, have been gaining momentum with more than 50% of its population now urban dwellers; and life expectancy, although still low at age 52, is rising.
The country is also among world鈥檚 most economically divided. Oil has developed a growing cadre of super-rich 鈥 in 2014, approximately 16,000 citizens achieved millionaire status 鈥 but poverty continues to be a grinding and growing problem, especially in Nigeria鈥檚 northern, majority Muslim region.
The country鈥檚 population is currently ranked by the World Bank as the world鈥檚 third poorest, with approximately 70% of its citizens living below the National Poverty Line 鈥 that is, on less than US$1.25 a day. In addition, in 2014, about 23.9% of working-age Nigerians were unemployed, and about 12.8% had no income at all 鈥 up from 10.9% in 2010.
As income is considered to be one of the main determinants of insurance penetration, it is not surprising that Nigeria鈥檚 life insurance market is thus far small, and growth has been slow. Although the country currently has approximately 118 registered insurers, five reinsurers and 23 banks (including the Islamic Jaiz Bank), overall insurance penetration is currently one of the lowest in the world.
And a need definitely exists: the National Insurance Commission (NAICOM), the country鈥檚 insurance regulatory body, found in 2014 that only about 1% of Nigeria鈥檚 total adult population had protection cover, and gross life premiums written comprised just 0.1% of the country鈥檚 GDP. The fourth annual Access to Financial Services in Nigeria survey, conducted in 2014, found that only 12.3% of adults in the country currently have relationships with insurers, microfinance, pension schemes or shares. Additionally, Nigeria also has no social security system which, given its rising urbanisation, risks leaving its oldest citizens even more vulnerable.
Still, a McKinsey & Co report on Nigeria鈥檚 retail economy in December 2013 stated that approximately 11% to 18% of urban households had purchasing power and
annual incomes of over $10,000, placing them in Nigeria鈥檚 鈥渕oderate affluent鈥 class. The report also predicted considerable growth among the country鈥檚 emerging middle class (those with incomes of more than $5,000 a year). This segment is predicted to increase to 27% of the population by 2020.
Given these metrics, takaful could potentially have a role in the future development of Nigeria鈥檚 life insurance market.
African Alliance Insurance, the country鈥檚 oldest specialist life assurance company, first introduced takaful to Nigeria in 2005. It offered family takaful, a product similar to whole life insurance in that it contains both a protection and a savings component. Niger Insurance came into the takaful market soon thereafter, developing and introducing Niger Mutual Halal Plus, a product containing a Shariahcompliant saving and investment plan.
Cornerstone Insurance, a traditional insurer, then came into the market, establishing Halal Takaful Nigeria, its takaful window. By 2013, Cornerstone was the first licensed composite operator in Nigeria, offering traditional as well as family and general takaful products, deriving 3% of its total gross premium income from takaful, and experiencing an increase in contributions of increased 83% from the previous year.
2013 was also the year NAICOM issued 鈥淥perational Guidelines 2013 Takaful 鈥 Insurance Operation鈥, the first national guidelines for Nigeria鈥檚 takaful market. These
established a Shariah-compliant business framework to facilitate the life industry鈥檚 transition from traditional to standalone takaful companies with good prudential standards and strong Shariah and corporate governance.
The guidelines outline and clarify takaful operator duties and responsibilities and set minimum operation and disclosure standards and requirements. Three models are permitted: mudarabah (profit-sharing), wakalah (agency) and wakalah-mudarabah (hybrid).
The guidelines also require every operation to have a Shariah Council (Advisory Council of Experts, or ACE), which is responsible and accountable for all Shariah decisions, opinions and views. As Shariah expertise is not common in Nigeria, for insurers in the initial stages of offering takaful, the guidelines permit NAICOM鈥檚 Takaful Advisory Council to provide Shariah decisions.
Currently, five insurers have applied for approval to establish takaful operations in the country, and NAICOM is investigating how best to allow foreign participation in takaful providers in order to accelerate the industry鈥檚 growth.
The life segment overall continues to face certain challenges. Currently, there is little of the trust necessary among both sellers and potential buyers for a life insurance industry to flourish. The lack of readily available information on a person鈥檚 background makes it difficult to assess creditworthiness, and insurance companies are currently faced with limited access to expertise and skills. There is also resistance among Africans to conducting transactions without being face-to-face due to the potential for fraud, scams and trickery, which affects the possibility for the development of the online sales channel in Nigeria. In addition, penetrating the north,where the majority of Nigeria鈥檚 Muslims live, has been a particular challenge for conventional insurers, which have thus far had little success in the region.
Still, the growing strength of Nigeria鈥檚 economy, the emplacement of operational guidelines and laws for takaful and the country鈥檚 sizable Muslim population (approximately 48% of the total, the largest in Sub-Saharan Africa), mean that takaful has the potential to become a strong segment of Nigeria鈥檚 life insurance sector. Takaful can be a platform for financial inclusion, however, not just for Muslims, but also for certain segments of the country鈥檚 Christian population.
Takaful could also have a positive impact on insurance penetration overall. For this to happen, however, NAICOM believes more trust would have to be built in takaful, especially among Nigeria鈥檚 Muslim population. Thus far, cultivating positive awareness of takaful has been a challenge, as many Muslims have long believed life insurance is not compliant with Islamic principles.
The Nigerian government, its Islamic communities and Shariah scholars would do well to play an active role in communicating what takaful is, and its benefits. Brokers and agents especially must be properly trained and committed, as they are frequently the takaful operators鈥 first point of contact with customers as well as a customer鈥檚 first and primary source of information about the product.
The inclusion of microtakaful could also raise financial access and inclusion among lower-income Nigerians in the country鈥檚 impoverished north, where the majority of its Muslim citizens live. The 2014 Financial Services Access Survey indicated rising interest in microinsurance for life, accident and disability cover. Like microinsurance, microtakaful is designed for low-income individuals and features products with low face amounts and premiums. To be effective for this market, however, microtakaful would have to be affordable, appropriate, and accessible, and providers would need to be able to offer the product cost-effectively.
Growth in the insurance industry in general can be escalated if awareness of insurance rises, if individuals鈥 disposable income and a country鈥檚 labour force increases and if a country鈥檚 inflation rate decreases. Several of these trends are already occurring in Nigeria, but there will clearly continue to be many challenges ahead.