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For many customers in emerging markets, their first encounter with insurance goes something like this: Your friend, who recently went into debt because she couldn’t pay off hospital bills, urges you to avoid a similar problem by buying medical insurance. You’re reluctant, since you’ve heard many stories of fraud and unpaid claims. But you decide to do some research to learn more about it — and soon discover that you cannot find any clear information online, other than the contact info of some nearby brokers. The first broker you reach out to doesn’t respond. You call four more, and finally one agrees to meet next week. At the meeting, the broker speaks a bunch of words that sound like a foreign language, like co-payments, deductibles and out-of-pocket maximum, and then wants you to sign a contract that’s way longer than you expected. You ask about the cost and discover that the premium will consume a third of your monthly paycheck. So you refuse — why would you pay that much now for something that you might not even need in the future? 

For most of us in more developed markets, the main perceived downside to insurance is that you need to pay a regular premium, but you don’t see the benefits unless you experience an issue that impacts your health or property. However, for many customers in developing countries, including most Nigerians, this is just one of several common complaints about insurance — a product that often seems confusing, inaccessible and unaffordable in these markets. That’s why Nigeria has one of the lowest insurance penetration rates in the world, at 0.5%. 

Yet this low uptake is also why the insurtech industry is poised for disruption and takeoff as part of Nigeria’s digital transformation, from both a business and development perspective. Africa has already seen this sort of disruption and rapid scale in the broader fintech sector over the past decade, specifically with mobile money and digital banking. Insurance may not seem as sexy as mobile wallets, since its benefits are harder to understand, and it lacks mobile money’s built-in association with technology and innovation. But I argue that the sector offers an equal — or perhaps even greater — opportunity for growth and impact. 

However, to tap that opportunity, insurtechs will need to address the myriad problems that plague Nigeria’s insurance market. I’ll explore those problems, and highlight some tech-driven solutions, below. 

Lack of Accessibility

The low insurance uptake among the general population in Nigeria is caused in part by a lack of accessibility. But this is not due to a lack of insurance providers, of which there are many: Rather, it’s driven by three other factors. First, the current distribution system, which revolves around brokers going door-to-door to sell insurance products in-person, focuses only on a small customer segment consisting of wealthy individuals and businesses. Second, traditional insurance companies lack the drive and understanding to reach customers who lack financial literacy. In a country where most people don’t understand insurance’s “invisible” benefits, and cannot navigate the complexity of jargon-ridden contracts, this creates a highly inaccessible insurance market. Third, Nigeria is among the top three most unbanked countries in the world, making it difficult for traditional players to collect premiums and pay claims. 

To remedy this lack of accessibility, insurtechs can leverage mobile connectivity and build off of people’s familiarity with mobile money, ride-sharing apps and other mobile products to reach and educate the less financially literate. Some providers are already finding success with this approach. For example, Pula, which provides small farmers with crop failure insurance, partners with NGOs and mobile network operators to reach this customer base. As of 2021, they had insured 4.6 million farmers across Africa, including many in Nigeria. Similarly, Turaco — whose mission is “to free people from the fear of financial shocks” in Nigeria and other countries — partners with other mobile-tech companies to reach low-income individuals. For instance, they work with ride-hailing apps to sell insurance products to these apps’ users, a model that has allowed them to insure half a million people since 2018. 

Lack of Affordability

The lack of affordability of many insurance options is another barrier to their uptake. Based on my review of prices at some of the country’s biggest health insurance providers, the cost of private medical insurance in Nigeria ranges from US $100 to $1,000 annually. With 40% of Nigeria’s population living on roughly $1 a day, insurance products are rightly seen as a privilege that only the elite can afford to have. 

But why is insurance so expensive in Nigeria? On the cost side, current insurance players have cost structures that involve substantial expenses related to maintaining their brick-and-mortar locations, hiring and paying agents, and purchasing expensive licensing. On top of that, it’s simply easier and more profitable to target high-income customers for whom high fees aren’t an obstacle. And traditional insurance players often invest profits in real estate and bonds, rather than reinvesting in the company to increase efficiencies, lower costs and reach more low-income customers. 

In contrast to these traditional insurers, insurtechs are using automation, cloud computing, digital communication and other new technologies to dramatically reduce costs. For example, Casava — a startup that calls itself “Nigeria’s first 100% digital insurance company” — provides coverage for health and job loss directly via its website, mobile app or WhatsApp. It offers six months of income protection for a $1/month premium, and raised a $4 million pre-seed round last year. 

Lack of Trust

Beyond accessibility and affordability, there is also a general lack of trust in insurance companies in Nigeria, resulting from their reputation for late or unpaid claims and poor customer service, and from the country’s history of financial industry corruption. As a result, nearly 75% of Nigerians said in a 2017 survey that they do not trust insurance companies. 

In contrast to traditional insurers, the new wave of insurtechs, founded on customer-centric startup principles, take their reputation much more seriously and invest heavily in perfecting the user experience. For instance, RelianceHMO, which provides employer-based health insurance through an extensive HMO network of 1,500 hospitals, prides itself on its superior customer experience. It features 24/7 telemedicine access through its mobile app, and round-the-clock access to call center agents if customers need support. Other insurers have also worked to overcome customers’ lack of confidence in the industry’s good intentions: For example, Turaco has built its brand around the motto “We are in the claims paying business.”

Reasons for Optimism in Nigeria’s Insurance Market

Due to the innovative efforts of Nigerian insurtechs to address the challenges discussed above, the country’s insurance industry is primed for significant growth. Several macro conditions also support the growth of this industry in Africa. For starters, the COVID-19 pandemic has demonstrated the importance of health insurance for many affected families. And the continent’s growing middle class is fueling demand for products like life insurance, as these households seek greater financial stability — and increasingly have the income to pay for it. Regulators have also taken steps to add to this momentum, as Nigeria’s National Insurance Commission established an “innovation sandbox” to ease regulations and promote the growth of insurtechs in 2022. 

As a result of these factors, combined with Nigeria’s paltry insurance penetration rate, the market opportunity for insurance is massive. And there is broad agreement among development analysts that now is the time for private players to transform the country’s public-dominated insurance market. 

Yet in spite of this potential, the insurtech sector remains under-invested. In Nigeria, insurtechs attract just 3% of all fintech investment, whereas mobile money and digital banking dominate at 38% of investment, and even cryptocurrency garners 8% — almost triple the amount of insurtech. This represents an untapped market opportunity, not only for investors, entrepreneurs and other business stakeholders, but also for development actors. An insured population and a developed insurance market have been linked to positive social outcomes, both for at-risk individuals and the economy at large. Insurtechs have the greatest potential to achieve those impacts for the continent — but only if development sector and other funders look past their traditional focus on mobile money and invest in these businesses.

Brian Yu is a social entrepreneur currently working as the Growth Manager for Shecluded, a fintech startup based in Lagos.

Photo courtesy of KC Nwakalor at USAID Digital Development.