Sparkle, founded in 2019 and based in Lagos, has an in-country insurance partner, says Dozie. Regulatory approval will be needed, and the partner may need to upgrade their systems, he adds.
Nigeria’s insurance penetration rate of less than 1% lags behind that of regional peers and the industry contributes only 0.3% to GDP. Dozie traces that to fears that claims will not be paid, and “cumbersome and complex” sign-up processes involved.
Yet, according to the GSMA Mobile Connectivity Index, 79% of Nigeria’s population have mobile connectivity, with 39% having access to mobile broadband connections. Those levels of connectivity have prompted a re-exploration of Nigeria’s insurance market. In March, Prudential Zenith Life partnered with MTN to make insurance products easier to buy.
According to a report from the World Bank, distribution of insurance in Nigeria is largely broker-driven, and most premium collection is done through corporate payrolls. But even for salaried employees, who are likely to be able to afford cover and who are the easiest to reach, uptake is only 10.6%. Education and product flexibility are parts of the solution. “We haven’t democratised insurance,” Dozie says. “People don’t understand it on a basic level. What am I paying for?”
- People in the future are more likely to want to insure their activities rather than their assets, he says.
- Car ownership levels, for example, are likely to decline. Rather than permanently insuring a car, short-term insurance for car rental is likely to be in demand.
- “People can’t do that using existing infrastructure.”
Dozie is the former CEO of Diamond Bank, taking office in 2014. Diamond Bank was bought by Access Bank in 2019, after it experienced several years of losses.
He is targeting 2 million customers overall for Sparkle in two years, versus 10,000 now and expects that Sparkle will break even in the first quarter of 2021. Absent a change in the scope or cost of regulatory licenses, Sparkle won’t need to raise new finance, he added.
- Sparkle, which has a banking license, plans to start offering consumer and small business loans at the end of the first quarter of 2021, Dozie said. It won’t be entering the mortgage market.
- This month, Sparkle announced a partnership with Visa to extend the range of services for its individual and small-business customers.
- Sparkle customers will be able to use a virtual Visa card to make payments and receive cross-border remittances from Visa cardholders.
“COVID has validated the case” for the Visa partnership, he says. “Every business now has to have a digital channel.” Leveraging on the Visa brand, Dozie says, will help Sparkle to reduce its set-up costs and get more for its advertising spend.
The use of cash “has been the block on digital progress,” says Dozie. Lockdown, he argues, has shown the limits of a cash-based economy, and the need for digital liquidity.
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It’s one thing to deliver services such as payments and loans, for which there are existing, proven markets, more cheaply and efficiently. In the case of insurance, the challenge for Sparkle will be to use digital channels to create new markets.
Bottom line: If Nigerians are ever going to start buying insurance, it will be through digital channels.
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