We have great fintech (financial technology) entrepreneurs in Nigeria. The problem is that our fintech focuses on banking only. We have forgotten the insurance part of financial services. You may not blame the entrepreneurs as offering insurance services may be hard in Nigeria, some say. The argument is that trust is low and Nigerians have not opened up to insurance yet. For the entrepreneurs, I do think the challenge is lack of quick wins in insurance, for anyone that wants to go beyond offering brokerage services to underwriting of risks. You do not make immediate commission which is typical in the fintech world. Rather, for insurance, you take a premium and find ways to invest it, hoping that the value created will be more to settle damages, should bad things happen. So, the business of insurance is not structured for startups.
Unfortunately, I will disagree. If Nigerian fintech entrepreneurs think they are risk takers, insurance is a good sector for them to show that in Nigeria. We need to develop that sector because the market is still at infancy. It is one of the most untapped industries in Nigeria and has promises ahead of it. It simply needs someone with vision and capability to unlock the opportunities.
The Nigerian insurance market is a paltry $1 billion (by premium sold) and that is for a country with more than 180 million people. (By comparison, the global market size is $4.55 trillion.) Over the years, Nigerian insurers have been unable to expand this market owing to lack of innovation.
South Africa accounts for almost 80 per cent of all premiums in sub-Saharan Africa and the country has an insurance penetration rate — the total value of insurance premiums as a proportion of GDP — of about 13 per cent, well above the developed world average. Of the rest, Kenya is among the most advanced, with a penetration rate of 3 per cent. Nigeria’s, in comparison, is about 0.4 per cent, even though it is Africa’s most populous.
The Nigerian Insurance Industry includes the following sub-sectors: Composite, Non-life, Life and Reinsurance operators. Over the last five years, the Nigerian Insurance Industry has grown at a compound annual growth rate (CAGR) of 11%, buoyed by increased capitalization as well as the introduction of policies aimed at promoting the local market.
A Global Leader
What we are doing in fintech (yes, banktech) needs to be deployed in the insurance industry. We have brought speed, efficiency and innovation in the financial services with focus on remittance, payment, saving and lending. One company we can mimic is the Chinese ZhongAn, an online-only insurance provider, as we plot strategies to redesign the Nigerian insurance industry
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Zhong An Online is a Chinese property insurance company that sells all its products online along with handling claims. The company offers e-commerce, mobile payment, and financing guarantee for internet businesses and users. Founded in 2013, Zhong An Online offers business opportunities covering various areas, including the internet-based business and household property insurance, cargo insurance, liability insurance, and credit insurance.
The company has sold 5.8 billion policies to 460 million customers since it was started in 2013. It is the industry leading player in the insuretech (insurance technology) sector where players like Lemonade, Oscar, Clover and Ladder also operate. It is part of the fabric of modern ecommerce in China and has found a way to extract value from digital transactions which it insures.
For example, its top-selling product, a shipping return policy, is sold directly on Alibaba’s shopping platform Taobao and allows shoppers to insure the cost of returning products to vendors. Ctrip, China’s largest online travel group, has helped ZhongAn market “flight delay” insurance, which allows customers to insure against late flights. Customers can buy “cracked screen” insurance when they buy a phone from the website of Xiaomi, a Chinese phonemaker
In Nigeria, we need a fintech company that can emulate what ZhangAn is doing. We have gotten online lender like Paylater.ng and Piggybank.ng. We already have payment processing startups like Paystack and VoguePay. But there is nothing in the insurance sector. Now is the time to find the insurance equivalents. ZhangAn is winning. Investors seem to have agreed that online insurance has value.
The online insurer’s stock surged as much as 18.1 percent in Hong Kong Thursday after an IPO that was more than 100 times oversubscribed. Initial share sales in the city that have raised at least $500 million have risen an average 4.2 percent on their first day of trade, data compiled by Bloomberg show.
A Model
Any company going to do this should better focus on the technology insurance element and leave the traditional one at the moment. It may not be smart to go into the extremely complicated insurance markets in Nigeria. Our attitude will not help. What ZhongAn did is a good idea and that can be replicated to seed solid partnerships with jumia, Konga, Yudala and other ecommerce companies.
With the backing of founding partners Ping An, Tencent, and Alibaba, Zhong An Onlinelaunched as China’s first online-only insurer in 2013. Last week, Zhong An filed to raise $1.5B on the Hong Kong Stock Exchange on the back of some big numbers: 7.2B insurance policies sold, 492M customers served, and close to $500M in gross written premium in 2016.
By working with these players, the business will focus on the lower level risks. Konga is already doing a small version of that with Cornerstone Insurance Plc. However, the cost model of a traditional insurance will surely make the premium expensive. The beauty of ZhongAn is the ability to price low because its expenses are low. Someone in Nigeria must find a way to unlock that value in our insurance industry.
The Cornerstone Insurance Plc is focused on the customers while the major product from ZhangAn focuses on “reimbursing merchants for the shipping costs on returned products purchased on Alibaba’s Taobao marketplace and Tmall (it also offers a shipping return policy for consumers)”. The merchants are the main customers and not just the buyers in the ecommerce ecosystems. That is an interesting business model that can work in Nigerian marketplaces giving merchants confidence to sell while also offering customers the trust to buy.
All Together
Insurance works when the buyer has confidence he/she can be protected when things go bad, and the seller knows it can make money doing so. By using technology, costs can be significantly reduced making premium affordable even when providing high value. Nigerian entrepreneurs in the fintech sector must look beyond banking to insurance. The latter has promising opportunities which we have left on the table at the moment. That must change.
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Wow. This is a very educative piece on the gains of FINTECH. The case studies are awesome sir.
I like the “cracked screen” insurance part provided by ZhongAn…
Thanks Prof.
Absolutely – we need to make it happen.
I’m passionate about our insurance industry and hope to contribute to helping improve it’s offerings atm so I love this piece. There is a lot of investment in the banking sector and insurance seems to have been forgotten. It’s almost like if you mention financial sector, banking is the go-to industry.
The issue I feel about the insurance industry in Nigeria is that in our day to day lives as Nigerians, insurance is never in the conversation.
On a suitable model, why can’t a traditional insurance company branch out sort of into insuretech ? I mean to do what WEMA bank did with ALAT?
I am urged to organize a discuss about all these things because you hit it home with your last sentence. I hope we can work together on some capacity on this.
Damola, absolutely,It is an opportunity which must be unlocked. Anyone that gets it right may even do better than the banktech because the opportunity is huge.