An Overview Of Micro Insurance In Nigeria: A Legal Perspective1
1. INTRODUCTION
1.1 Microinsurance is a rapidly growing sector within the insurance industry, offering financial protection to low-income individuals and small businesses in Nigeria. As the country with the largest population in Africa, Nigeria presents both challenges and opportunities for microinsurance providers. The National Insurance Commission ("NAICOM") established the Guidelines for Micro Insurance in Nigeria 2018 (the "Guideline") to serve as a Uniform set of rules, regulation and standard for the conduct of microinsurance business in Nigeria. The Guideline serves as a protection for the consumers and provides that interested applicant must be a Limited Liability Company duly registered by the Corporate Affairs Commission.2
1.2 In Nigeria, the Microinsurance sector is an untapped market hence, the introduction of the Guideline is an indication that the Nigerian Microinsurance sector is awakening and considering low-income insurance distribution. The Guidelines defined Microinsurance as insurance developed for low-income populations, with low valued policies provided by licensed institutions, run in accordance with generally accepted insurance principles and funded by premiums.3 It explained that Microinsurance products are insurance products that are designed to be appropriate for the low-income market in relation to cost, terms, coverage, and delivery mechanism. It also clarifies the scope of Microinsurance for the operators, stating that the sum insured under a Microinsurance policy(ies) shall not be more than N2,000,000 per person per insurer.4
1.3 The Guideline provides that the policies and products must be easily deliverable to the target market through unconventional delivery methods such as Micro insurance agents, cooperative societies, mutual benefits associations, micro finance institutions, faith-based organisations, non-governmental organisations, osusu/adash5 groups, age grade groups, mobile payment system and other registered associations.6
2. REGULATORY FRAMEWORK FOR MICROINSURANCE IN NIGERIA
2.1 National Insurance Commission Act ("NAICOM Act"7)
NAICOM Act is the law establishing NAICOM. NAICOM is the primary regulatory authority overseeing the insurance industry in Nigeria, including microinsurance. It sets the rules and standards that microinsurance providers must adhere to, ensuring consumer protection and financial stability.
2.2 Guidelines for Microinsurance in Nigeria
Nigeria introduced a dedicated microinsurance regulatory framework in 20188, which defines microinsurance operations, licensing requirements, and regulatory expectations. This framework aims to facilitate the growth of microinsurance by providing a clear legal foundation for its operations, encourage accessibility while providing market stability and restoring consumer confidence.
2.3 Insurance Act 20049
The Insurance Act of 2004 governs all aspects of insurance in Nigeria, including microinsurance. It establishes the legal framework for insurance contracts, premium rates, and the licensing of insurance companies.
3. CAPITAL REQUIREMENTS AND CATEGORIZATION OF MICROINSURANCE COMPANY IN NIGERIA
3.1 In the Guideline, NAICOM prescribed capital categorization for Micro insurance company. The categories include;10
3.1.1 Unit Microinsurer
A unit Microinsurance company is an insurance company that operates within a local community. This insurance company is aimed at getting across to low income earners within a specific time frame in a local community to allow the company get across to as much persons as possible in the given community before a subsequent approval to operate on a bigger scale. Insurance operation of this nature are capped in a 36month time frame. The minimum capital base for setting up a unit microinsurance company is ₦40 million naira which is further categorized into two thresholds namely: a general insurance class at ₦25 million naira capital base and a Life class at ₦15 million naira capital base.
3.1.2 National Microinsurer
A National Microinsurance company is a microinsurance company with operations in six states within at least three geopolitical zones in Nigeria. Insurance companies who meets these criteria can apply to operate as a national microinsurance company. The minimum capital base for setting up a national microinsurance company is ₦600 million naira which is further categorized into two thresholds namely; a general insurance class at ₦400 million-naira capital base and a Life class at ₦200 million naira capital base.
3.1.3 State Microinsurer
A State Microinsurance company is an insurance company with operation in at least 3 states of the federation with 3 different branches in one state. The company branches should be in in different local government areas around the state. The minimum capital base is ₦100 million naira. State microinsurance companies can be further categorized into two thresholds namely, a general insurance class at ₦60 million naira capital base and a Life class at ₦40 million naira capital base.
4. LEGAL CHALLENGES
4.1 Consumer Protection
The aim of Microinsurance is to create an avenue for low income earners to get insurance policies at cheap and convenient rates. Ensuring that microinsurance meet the need of low-income earners without exploitation or subjecting them to unfair treatment could pose legal challenges, as such, regulators should introduce parameters to ensure that rules are strictly complied with thereby protecting consumers from unfair treatment.
4.2 Procuring Approvals and Compliance
Compliance and licensing for microinsurance companies are very important because it ensures that microinsurance companies get the requisite approval before commencing operation. The requirement for securing microinsurance license is voluminous, asset consuming and complex when compared to the operation it is meant for, as local entities may find it challenging to comply with this rules and other regulatory standards.
4.3 Fraud and Claims Management
Fraudulent Claims and other claims management are challenges that could be encountered in insurance operation. Since most microinsurance users are low income earners mostly located in rural areas, there are high tendencies of illiteracy which could inhibit the insured from knowing how to process claims. As such, insurance laws should provide clear rule, frameworks and guidelines for investigating and mitigating fraudulent activities, create safe space for policy holders to report claims and ensure genuine claims are promptly paid.
4.4 Data Protection
As digital platforms become increasingly important for microinsurance distribution, legal frameworks around data privacy, security and protection become paramount. Nigeria's data protection Commission must actualize its function11 of harmonizing data controllers while providing safe space for data usage thereby making sure microinsurance operators protect policyholders' information.
5. ROLE OF LAW IN SHAPING MICROINSURANCE GROWTH
5.1 Section 2.2 of the Guideline for Microinsurance in Nigeria provides for small scale partnership as a way of facilitating microinsurance penetration into communities, small scale institutions and entities. This Guideline encourages partnership and distribution of microinsurance activities between insurance practitioners and other Micro delivery channels such as Microfinance banks, mobile money operators, payment terminal operators, associations, faith-based organisations etc.
5.2 Its pertinent to underscore the role of well-defined laws amongst consumers. A well-defined law with easy enforcement procedure restores confidence to consumer who would be aware that their rights are protected and would be more confident in participating in microinsurance schemes. Happy customers will increase the micro insurance market resulting in market stability.
5.3 The most important role of law is shaping growth in the microinsurance sector is in ensuring product development and innovation. The Insurance Regulatory Sandbox Operational Guideline12 is a step towards such innovation. The guideline creates formal process for firms to conduct live tests of new, innovative products & services, delivery channels, or business models in a controlled environment, with regulatory oversight, subject to appropriate conditions and safeguards. This piece of legal framework encourages innovation by allowing microinsurers design flexible and affordable products tailored to the needs of the low-income population.
6. CONCLUSION
Microinsurance in Nigeria, is a rapidly evolving sector. The regulatory framework, though still evolving, is crucial for fostering growth, ensuring consumer protection, and maintaining market stability. As microinsurance providers continue to innovate and reach underserved populations, legal aspects will play an increasingly significant role in shaping the sector's success, ultimately benefiting low-income individuals and small businesses across the country.
Footnotes
1. Emmanuel C. Onele, Associate, S. P. A. Ajibade and Co., Lagos, Nigeria.
2. Overview of the Microinsurance Ecosystem in Nigeria available at https://www.efina.org.ng/wp-content/uploads/2019/02/Overview-of-Microinsurance-Ecosystem-in-Nigeria-April-2018.pdf accessed 20th December 2023.
3. Ibid.
4. Ibid.
5. Osusu/adash describes traditional forms of cooperation in African societies whereby groups of individuals contribute to informal savings and credit associations for their mutual benefit. These associations are found mainly in agricultural production and credit financing, and they substitute for and complement modern cooperative institutions and formal financial systems. See, Osabuohien and Oluyomi Ola-David, 'Development of Economics Studies', available at https://www.in-formality.com/wiki/index.php?title=Esusu_(Nigeria) accessed 22nd December, 2023.
6. BusinessDay Newspaper, 'Companies Shun Microinsurance window on capital requirement, cost of governance' published November 22, 2021 available at https://businessday.ng/insurance/article/companies-shun-microinsurance-window-on-capital-requirement-cost-of-governance/ accessed 22nd December, 2023.
7. National Insurance Commission Act Cap N53 LFN 2004.
8. NAICOM Releases Revised Micro Insurance Guidelines to Boost Inclusion available at https://www.nipc.gov.ng/2018/01/17/naicom-releases-revised-micro-insurance-guidelines-boost-inclusion/ accessed 22nd December, 2023.
9. Cap I17 LFN 2004.
10. Section 2.3 Guidelines for Microinsurance in Nigeria.
11. Section 6 Nigeria Data Protection Act 2023.
12. The Guideline was released by NAICOM in 2018 to provide a safe ground for innovations in a controlled environment.
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