Understanding Risk Management and Why Insurance Matters

Why does risk management and having insurance matter so much for people and businesses in Nigeria?

Managing risks through things like insurance helps prevent falling into poverty after illness, accidents or loss of family members working in businesses.

Insurance helps people sleep better at night even when facing unsure situations.

UNDERSTANDING RISK MANAGEMENT AND WHY INSURANCE MATTERS IN NIGERIA

Risk management and insurance are vital yet often overlooked components of both personal and business financial planning in Nigeria. With various risks like illness, accidents, death, natural disasters, political instability and more, having insurance provides financial protection that can be the difference between coping and falling into poverty. As such, there is a need for greater understanding of risk management principles and why insurance uptake matters for the country’s development.

WHAT IS RISK MANAGEMENT?

Risk management refers to the practice of identifying potential threats, analyzing the likelihood and impact of those threats, and then developing strategies to mitigate that risk. The goal is to minimize the negative impact of uncertain events on people and organizations.

For individuals, risk management strategies may include purchasing health, life, or disability insurance to provide income replacement or pay unexpected medical bills if serious illness or injury happens. Family breadwinners in particular need life insurance to protect dependents if the breadwinner passes away unexpectedly.

For businesses, risk management can protect against potential losses that could bankrupt the company. Insurance policies help hedge against risks like property damage, employee injuries, lawsuits from customers, interruption of operations, cyber crimes and more. Other risk control strategies include employee screening, safety training, site security, data backups and diversifying suppliers or distribution channels.

WHY INSURANCE UPTAKE MATTERS IN NIGERIA

In developed countries, insurance penetration, or the percentage of insured citizens, ranges from 10% to 15% of the population. However, Nigeria’s insurance penetration lingers around 1-3% after decades of slow growth. The average Nigerian is vulnerable to falling into poverty after illness, death of family members, natural disasters, accidents and asset loss.

Greater insurance uptake in Nigeria would provide financial stability in both predictable and unpredictable losses. With enhanced risk management and increase in those insured, the socio-economic benefits would be:

1. Protection from Poverty: Insurance payouts help cushion families after unexpected health crises, death, business losses or natural disasters. This prevents deleting life savings and selling productive assets that plunge people into poverty.
2. Access to Credit: Banks often require some insurance before approving loans. With more citizens insured, enhanced financial inclusion and lending can expand economic opportunities.
3. Business Growth: Entrepreneurs and small businesses remain underinsured in Nigeria. Insurance helps stabilize earnings over years of operation. This facilitates business investment, expansion and job creation that grows the economy.
4. Increased Investments: As the insurance industry grows its premium pool, there is more capacity to invest in money markets and large development projects that can accelerate Nigeria’s economic growth.
5. Improved Healthcare: Private health insurance allows expanded access to quality care. This leads to a healthier and more productive workforce.

BARRIERS TO INSURANCE IN NIGERIA

Despite the benefits of managing risk through insurance, uptake has lagged in Nigeria due to various factors:

• Low levels of consumer awareness on insurance benefits or products available.
• Cultural beliefs that insurance amounts to “tempting fate” so people rely on faith or family support instead.
• Widespread mistrust of insurers due to perceptions of refusing or delaying claims.
• Limited regulation and insurance scams have worsened distrust of legitimate carriers.
• Low income levels make insurance premiums unaffordable to many, especially in the large informal sector.
• Rural people are harder to access for consumer education and product distribution.

HOW CAN NIGERIA BOOST RISK MANAGEMENT CAPACITY?

Growing insurance penetration in Nigeria requires concerted efforts from stakeholders across the country. Players in the financial services, government, healthcare, education and development sectors can improve risk management capacity by:

• Increasing Consumer Education: Schools, religious groups, trade groups and community leaders need to build awareness on insurance benefits while regulators crackdown on scams eroding public trust.
• Introducing Microinsurance: Insurers need affordable and convenient plans for lower income citizens and those in rural areas to promote financial inclusion.
• Establishing Risk Frameworks: The government should develop centralized guidelines, metrics and databases supporting risk analysis for informed insurance underwriting and pricing nationwide.
• Improving Distribution Channels: Digital insurance platforms and mobile money facilitate insurance purchases conveniently. Brokers also need to access more remote regions with appropriate products.
• Enforcing Mandates: Government and trade groups should introduce insurance requirements that expand uptake across healthcare, construction, transportation and other priority sectors.

FINAL THOUGHTS

Nigerians can avoid losing everything from sickness or disasters by having insurance to depend on. Getting more education on risks and insurance options will allow families and companies to grow without fear. Country leaders must also help citizens get the support they need through advice and affordable insurance. This way Nigeria’s future will thrive no matter what hardships come up!

In conclusion, a comprehensive approach is required to enhance Nigerians’ capacity to manage risks through insurance as a pillar of socio-economic development.

This will stabilize households and spur small business growth after illnesses, deaths, accidents or natural disasters that often lead to poverty otherwise.

As such, concerted efforts to educate, innovate and regulate insurance markets will unlock the sector’s potential for national progress.