COVID-19 creates paradigm shift in insurance, pension sectors — Soyewo


The Covid-19 pandemic has had drastic impact on lives and businesses in ways that we are all very familiar with at this point. Before the pandemic, approximately 4 in 10 Nigerians were living below the national poverty line, and millions more were living just above the poverty line, making them vulnerable to falling back into poverty when shocks occur.  The world bank estimates that the covid-19 crisis will result in 10.9 million Nigerians falling into poverty by January 2022. If we have learned anything, the pandemic and the ensuing economic crisis have highlighted the critical need for a functioning social security system to allow all Nigerians achieve an adequate standard of living.

Before the pandemic, the conventional wisdom was that being physically present at the office was critical to productivity.  Today, many statistics point to increased productivity with work-from-home arrangements. Technology has enabled collaboration and enhanced productivity without needing to be in the office all the time. While some jobs still require a personal touch, technology is playing an increasing role in how we interact with each other.  A consequence of this is that many employees have now been liberated from long commutes and have found more productive ways to spend that time.  Employees enjoy greater flexibility in balancing their personal and professional lives and many now prefer to work from home. Organizations have also realized that the cost of doing business is significantly reduced when employees work from home; in addition, their talent pools have now become much larger with fewer locational constraints.  One can conclude therefore that despite the massive economic and human toll of the pandemic, there have been some real positive changes made in how we work.

Sometime in 2012, the National Financial Inclusion Strategy was launched in Nigeria as a catalyst for economic recovery in the Country.  Financial inclusion is achieved when adult Nigerians have access to affordable financial products and services that meet their needs. Financial inclusion can only be achieved when financial transaction processes and documentations are transparent, simplified and seen as meeting needs of the people and at the same time being beneficial to the financial services sector.

While the pandemic has caused severe disruptions, opportunities have also been created to grow customer base on account of the obvious fact that there is no real social security arrangement by government in the event of sudden and unexpected events and so citizens need to make plans by themselves for wellness both in business and family life.

Economic shocks like sudden loss of job, illness or death can send people living just above the poverty line into abject poverty.  So whether one is in the formal or informal sector, there is the need to have a safety net.  The sudden and unforeseen calamities created by the pandemic has highlighted the need to plan for unforeseen circumstances and even early retirement.

To take advantage of these opportunities, the pensions and insurance industries must remain committed to the inclusive growth of the Nigerian economy, creating opportunities for lower income groups to be part of the broader financial system.

There are 5 main thrusts of financial inclusion in Nigeria. They are Savings, Payments, Credit, Pensions, and Insurance. Increased collaboration between the private sector and government has led to the release of various guidelines guiding operations in Takaful insurance, bancassurance, micro insurance, micro pensions, pension fund investments and so on.

Speaking of insurance, opportunities exist to increase insurance penetration and the customer base, both in the retail and corporate segments of the market if the right moves are made. Insurance penetration has remained at an average of 0.4% of GDP driven largely by a general lack of understanding and awareness of the benefits of insurance products, specifically amongst low-income Nigerians.  We need to build trust.  The Banking Sector has managed to bridge this gap to an extent.

Attempts have been made to improve the performance of the insurance industry through regulation and legislation – new capitalization requirements have been announced and reviews of several key laws are being discussed to bring them up to current realities. In improving access to insurance and making products and services more inclusive, we are discovering that there is a role for all stakeholders to play.

Over the last 17 years, a tremendous amount of progress has been made in the Nigerian pension industry and regulation has enabled this growth. However, inclusive growth in pensions must recognize the peculiarity of the population segment being addressed. This recognition must have an impact on how products are designed and how lower income segments of the population interact with pension funds.  If you consider what happens in developed economies, there are different kinds of plans to meet different needs.

There is also a trust gap to be bridged in the pensions industry despite the potential benefits of the product. The National Pension Commission needs to take more advantage of digitization in pension operations to make transactions easier and more accessible.    In this, we can take a page out of what the banks have done to provide banking services to lower-income population groups.  Structures must be in place before the release of pension laws to ensure that all aspects of the Law are implementable.

The contributory pension scheme in Nigeria was designed to address the problem of inadequate or no preparation for retirement. However, the scheme has done much more – it has allowed incredible mobility for employees in the formal sector; it has simplified the administrative processes, has reduced drastically the fraudulent practices in pension scheme administration but is yet to fully address the issue of ensuring that retirement benefits are paid as at when due most especially where benefits accrue to workers under the defined benefit plan.  Pension benefits as received by many in the CPS dispensation, have been considered very inadequate to give comfort in old age. While we would like greater participation from State Governments and small/medium sized corporates, that is not something we can boast of today.

In coming up with solutions to address these problems, we must consider the basic needs of our clients when they indeed retire – food, shelter, healthcare and transportation. These needs must be considered in conjunction with inflation so that consumers can get the intended benefit that this scheme was created to provide.

Today, because of the economic pressures, a lot of people are more open to the possibility of withdrawing their full pensions savings. Is there a way to accommodate this request? If for instance, employees with RSA balances of less than a certain amount are allowed to withdraw their full pension savings, then what is the rationale for locking some others in?  For example, can we include penalties for early withdrawal?  Can incentives like basic levels of healthcare be offered as incentives to encourage clients to remain with their pension provider after they retire? Are there opportunities to offer clients more within the ambit of the law?

Such flexible options will give clients of pension funds more control over their future while also catering to the profit motive of operators.

When pensions products are demanded by the average Nigerian Worker either in the formal or informal sector and not impressed on them, a major milestone in financial inclusion would have been achieved.

Today, pension funds under management are over 13 trillion Naira with enrolment less than 10million registered contributors.  With the inclusion of the informal sector under the micro pension plan, this can be much higher. However, we must understand the needs of the population group we want to serve. We cannot use conventional products with this market segment. In addressing these needs and concerns, we will be doing our part to creating lasting economic change in Nigeria.

In conclusion, the opportunities which exists for increased financial inclusion in both the Insurance & pension sectors will only be achieved if we design products that are perceived to meet the people’s needs and could be seen as improving their welfare rather than impoverishing them. Operators must constantly be engaged in strategic thinking; have a broad understanding of the economic situation of the country, understand the mindset and ways of life of different ethnic groups and then have a variety of products from which the people can make a choice from.

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