eNaira: What is in it for Insurance and Business Operations?

Being a Virtual Presentation at the December 2021 Members’ Evening of The Nigerian Council of Registered Insurance Brokers on December 7, 2021.

1.0       Introduction

Earlier this year, the Central Bank of Nigeria instructed banks and other financial institutions to refrain from dealing with Cryptocurrency (a digital currency) and facilitating payment for cryptocurrency exchanges. With this, various crypto-based companies were frustrated out of the Nigerian market, and the growth of other digital and virtual currencies in Nigeria decelerated. Declining use of cash and rise in digital payments, COVID-19 pandemic, which has accelerated the adoption of digital payment technologies, Financial Inclusion and, the threat from private digital currencies and financial stability concerns, among other factors also motivated the emergence of eNaira.

There are no certainties or guarantees in life. There is no guarantee that the business will not suffer an unexpected loss or damages. So while we cannot protect our interests against all risks, we can opt for some insurance. Nigeria’s insurance market has great potential given its position as Africa’s largest economy, its substantial oil and gas reserves and its young and growing population. In this presentation, I will be discussing the concept of e-Naira, Insurance and business and the nexus with some recommendations

2.0       The Concept of eNaira

The eNaira is the digital form of the Naira, issued by the CBN in line with Section 19 of the CBN Act and can probably be referred to as Africa’s first own Central Bank Digital Currency (CBDC), it is an electronic version of the local paper naira currency, equal in value and issued by the Central Bank of Nigeria. It is not intended to replace cash but will function as a safe and efficient alternative means of payment. eNaira is a digital currency issued by the Nigerian government with the same value as fiat naira (i.e. physical naira notes). It is purchased by the general public through Financial Institutions (FI) and transferred into e-wallets maintained by customers. It is similar to the Chinese digital renminbi and the Swedish e-krona.

2.1 How does the eNaira differ from cryptocurrencies such as Bitcoin?

The eNaira is a central bank digital currency (CBDC) issued by the government, and have the same value as the paper, or fiat, currency. It is a government-controlled digital currency envisaged to be more stable. Its value is parity with the country’s official currency, whilst Cryptocurrency is a decentralized form of encrypted digital currency based on blockchain technology. They also differ as follows:

1. CBDCs differ from cryptocurrencies because it’s being regulated and therefore subject to banking laws. They are issued by a central authority and are therefore trusted by traders. The CBN issued its regulatory guidelines for the eNaira on 1 October, 2021.
2. “CBDC is a digital payment instrument, denominated in the national unit of account that is a direct liability of the central bank while in contrast cryptocurrency is built on blockchain technology which ensures the decentralization of the creation, regulation, and use of cryptocurrency through the use of decentralized computer networks.”
3. The blockchain technology on which cryptocurrencies are built makes them anonymous. In contrast, while transactions in eNaira are made anonymous by the CBN, it still has access to information provided by users and can trace transactions.
4. The eNaira has the same value as the physical Naira, and its value will rise or fall concerning the dollar in the same way as the fiat currency. It is, therefore, unlikely to be as volatile as a cryptocurrency. Some cryptocurrencies – known as stable coins – are pegged to money, but governments back none.
5. E-Naira is not in coins, and it’s not in notes. It’s in a virtual format and therefore, can’t physically hold it, but can have it as a store of value, as a piece of payment, and it’s backed by the good faith of the central bank for every unit of that currency you hold, the central bank can give you physical Naira.

2.2 Why has Nigeria launched a digital currency?

The Central Bank has given several reasons for launching the eNaira. It is to:

1. Promote and facilitate financial inclusion;
2. Enable direct welfare disbursements to citizens;
3. Facilitate diaspora remittances;
4. Declining use of cash and rise in digital payments;
5. Covid-19 pandemic which has accelerated the adoption of digital payment technologies;
6. Threat from private digital currencies;
7. Financial stability concerns;
8. Reduce the cost of processing cash;
9. Improve the availability and usability of Central Bank money;
10. Increase revenue and tax collection;
11. Support a resilient payment system; and
12. Improve the efficiency of cross-border payments.

The introduction of the eNaira will enable peer-to-peer payments, cutting out ‘middle men’ or the use of intermediaries, such as financial institutions.

2.3 Benefits of eNaira over regular digital banking

Unlike digital banking, which involves customers transacting with money maintained by them in a bank, eNaira is actual money earned and maintained by customers in their e-wallets. Consequently, customers will be able to transact with it like fiat currency without the involvement of intermediaries, as is the case with digital banking. The elimination of the intermediaries is expected to reduce the cost and time of transactions. Furthermore, cross-border transactions are expected to become more manageable. It also provides an opportunity for unbanked Nigerians to transact with eNaira without a private bank account.

2.4 How eNaira will operate in practice

eNaira is supplied by the CBN (from their Stock Wallet) to intermediaries i.e. licensed Financial Institutions (FIs), for onward supply to individuals. Consequently, FIs maintains a treasury wallet to receive eNaira from the CBN. eNaira transactions will operate on existing systems, including the Nigerian central switch, i.e. the Nigeria Inter-Bank Settlement System Plc (NIBSS).

There are to be four major parties in the operating model of eNaira;

1. The CBN;
2. The licensed FIs (responsible for issuing eNaira to Customers, monitoring digital transactions under their institution;
3. Businesses and Merchants (responsible for complying with the CBN regulation on KYC and AML/CFT); and
4. Customers (responsible for maintaining an eNaira Wallet).

The eNaira will operate at four levels;

1. Consumer transactions;
2. Merchant/wholesale transactions;
3. Financial Institutions transactions; and
4. Ministries, departments and agencies (MDAs) Transactions.

2.5 Consumer Transactions

The eNaira is a legal tender, and users will be able to make peer-to-peer payments to anyone who has an eNaira wallet without using an intermediary. Customers will use their eNaira wallets to purchase goods in-store by scanning QR codes. Nigerians will be able to make payments for all goods and services this way. As the CBN has stated that there will be no charges for peer-to-peer transactions and fees to merchants, consumers will significantly save what they would have paid if making payments through a mobile money service.

Unbanked Nigerians will be able to make transactions of up to N20,000 a day without the need for a bank account, while those with bank accounts will be able to send or receive money using a bank account or credit card linked to their entire Wallet. It will be possible for customers to monitor their wallets, balances, and transaction history. However, money held in an eNaira wallet will not be paid any interest. Users will transfer money out of their digital wallets back to their ordinary bank account, but it will not be possible to withdraw physical Naira from an ATM from the Wallet.

One of the main differences between the eNaira and existing e-wallets is that they will not hang transactions. “Once you’ve made the transaction, it’s done immediately.”

2.6 Merchant Transactions

The following services shall be available to merchants on the eNaira platform:

a) Merchant/Business to bank account;

b) Merchant/Business to Person (M/B2P); and

c) Cash to eNaira.

Merchants shall sweep them till balance(s) into their FIs accounts daily.

2.7 Financial Institutions (FIs) Transactions

The following services shall be available to FIs on the eNaira platform:

a) FIs to CBN / CBN to FI;

b) FI to Government / Government to FI;

c) FI to Business / Business to FI; and

d) FI to Customer.

2.8 MDA Transactions

The following services shall be available to MDAs on the eNaira platform:

a) MDAs to Person / Person to MDAs;

b) MDAs to MDAs;

c) MDAs to FIs / FIs to MDAs;

d) MDAs to CBN / CBN to MDAs; and

e) MDAs to Businesses / Business to MDAs.

2.9 How will the eNaira Wallet operate?

At the initial stage of its operation, the CBN provides an interim e-wallet (the Speed Wallet) for customers until FIs develop and launch their wallets. There will be several tiers of Wallet, as highlighted below.

Types of Wallet	Cumulative balance Limit	Daily Transfer Limit	Know Your Customers Requirement (KYC)
Tier 0	N120,000	N20,000	No existing bank account, phone number, name & birth date
Tier 1	N300,000	N50,000	No existing bank account, phone number, name, birth date & validated by NIN
Tier 2	N500,000	N200,000	Existing Bank account and Bank Verification Number (BVN)
Tier 3	N5,000,000	N1,000,000	Existing Bank account and BVN plus public utility receipt
Merchant	No Limit	No Limit	Full KYC requirement and Anti-money laundering and counterfeit terrorism regulation of the CBN

Source: CBN eNaira regulatory Guideline, 2021

2.10 General benefits of eNaira

1. The e-Naira is expected to foster economic growth by offering more accessible access to capital and financial services, increasing economic activities at low/no interest transaction rates.
2. It is also expected to provide secure and cheaper diaspora remittance options and make such transactions faster.
3. Due to its traceability, the e-Naira makes it more difficult for individuals or organizations to indulge in fraud.
4. While the impossibility of being forged makes it very strong and reliable, the e-Naira provides financial inclusion by making financial services available to communities without enough banking opportunities.
5. Local and international trade is expected to increase with the emergence of the e-Naira. The nation’s digital currency is expected to aid revenue collection by reducing the cost of handling cash.
6. Exceptional digital experience: With the e-Naira, diaspora payments are expected to become cheaper and safer to ensure individuals get more value for every Naira they earn. Regarding local charges, people can boycott the queues and pay taxes and bills from the comfort of their homes more straightforwardly and dependably.
7. Also, with the e-Naira, the CBN assures that financial government aids will get straight to the people, as it knocks the middlemen out the way, and individuals can claim funds directly.
8. An extra benefit attached is the secure banking which the e-Naira promises. Those worried about the safety and security of banking details can rest assured that transparency makes everything traceable.
9. Beyond faster and better transactions, the CBN promises that the eNaira makes it possible to send funds, save money, and save time while at it.

3.0       The Concepts of Insurance and Business Operations

Insurance is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients’ risks to make payments more affordable for the insured.

The Insurance company means an association, corporation, or fraternal or mutual benefit organization, whether or not for profit, engaged in the business of providing life endowments, annuities, or Insurance, including accident, burial, casualty, credit life, contract performance, dental, disability, fidelity, fire, health.

Insurance companies assess the risk and charge premiums for various types of insurance coverage. If an insured event occurs and damage is suffered, the insurance company pays the insured up to the agreed amount of the insurance policy. The way insurance companies work, they can pay this and still profit.

3.1 An overview of The Insurance Industry in Nigeria

The insurance industry of Nigeria consists of 57 registered insurance companies. 14 of them are in the life insurance business, while 43 are non-life insurers. There are also two reinsurance companies whose roles are to provide technical security and capacity for the insurance companies. Most insurance companies are incorporated according to the Companies and Allied Matters Act 1990.

Other insurance stakeholders in Nigeria include agents (individual and corporate), brokers, surveyors and third party administrators servicing health insurance. The fundamental idea of Insurance is that the insurer will ensure instalment for an unsure future occasion. At the same time, another party, the insured or the policyholder, pays a small premium to the insurer in return for that security on that uncertain future occurrence.

The National Insurance Commission (NAICOM) is the Federal Government operator rested with the supervisory and administrative capacity of the protection business in Nigeria. Some way or another, the advancements in the company are, for the most part, supported by the NAICOM through her yearly rules and mandates to protection administrators. The prime business operation is of holding the insured (customer) free from economic jolt/s arising out of certain agreed insured events.

3.2 Market Size

The Insurance Industry controlled an investment portfolio of about ₦723 billion as of FYE2016, with about 60% of total investments in the money market placements being bank placements and government securities). With 460 registered insurance brokers and about 15,000 insurance agents, the Nigerian insurance market has been described as brokers’ market because presently brokers control over 90 per cent of the premium income, with less than 10 per cent for insurance agents and even direct marketing channels by insurers.

NAICOM reviewed micro-insurance guidelines in 2018. The minimum capital base was reviewed as follows:

1. ₦40million (₦15million for life business, and ₦25 million for general insurance business) for companies that will do business in the community.
2. ₦100million (₦40million for life business, and ₦60million for general insurance business) for State business.
3. ₦600million (₦200million for life business, and ₦400million for general insurance business) for National business.

3.3 Investments and Recent Developments

The following are some of the significant investments and developments in the Nigerian insurance sector:

1. NAICOM released the blueprint/guidelines 2016 to implement the Risk-Based Supervision (RBS) model for the insurance industry.
2. Insurance companies are expected to increase their capitalization from ₦5 billion to ₦15 billion. At the same time, those interested in the same tier but operating life business must recapitalize from ₦2 billion to ₦6 billion.
3. Composite insurers must recapitalize to ₦7.5 billion, non-life operators to ₦4.5 billion, while life operators under the Tier 2 category are to increase capitalization to ₦3 billion.
4. To this end, non-life insurance firms in tier 3 are to maintain ₦3 billion; life insurance operators, ₦2 billion; and composite insurers, ₦5 billion.

3.4 Types of Insurance for the Individual

i. Life Insurance

Life insurance provides for your family or some other named beneficiaries on your death. Two general types are available: term insurance provides coverage only during the policy term and pays off only on the insured’s death; whole-life Insurance offers savings and Insurance and lets the insured collect before the end.

ii. Health Insurance

Health insurance covers the cost of hospitalization, visits to the doctor’s office, and prescription medicines. The most valuable policies provided by many employers cover 100 per cent of the costs of being hospitalized and 80 per cent of the charges for treatment and doctor’s services. Usually, the policy will contain a deductible amount; the insurer will not make payments until after the deductible amount has been reached.

iii. Disability Insurance

A disability policy pays a certain percentage of an employee’s wages (or a fixed sum) weekly or monthly if the employee becomes unable to work through illness or an accident. Premiums are lower for policies with longer waiting periods before payments must be made: an approach that begins to pay a disabled worker within thirty days might cost twice as much as one that defers payment for six months.

iv. Homeowner’s Insurance

A homeowner’s policy provides Insurance for damages or losses due to fire, theft, and other named perils. No policy routinely covers all perils. The homeowner must assess his needs by looking at the likely risks in his area; fire, theft, earthquake, hailstorm, flooding, and so on. Homeowner’s policies provide for reduced coverage if the property is not insured for at least 80 per cent of its replacement costs. In inflationary times, this requirement means that the owner must adjust the policy limits upward each year or purchase a rider that automatically adjusts for inflation. Where property values have dropped substantially, the owner of a home (or a commercial building) might find savings in lowering the policy’s insured amount.

• Automobile Insurance

Automobile insurance is perhaps the most commonly held type of Insurance. Automobile policies are required in at least minimum amounts in all states. The typical automobile policy covers liability for bodily injury and property damage, medical payments, damage to or loss of the car itself, and attorneys’ fees in case of a lawsuit.

• Other Liability Insurance

In this litigious society, a person can be sued for just about anything: a slip on the walk, a harsh and untrue word spoken in anger, an accident on the ball field. A personal liability policy covers many types of these risks and can give coverage above that provided by homeowners and automobile insurance.

3.5 Insurance associated with Business Operations

a. Workers’ Compensation

Almost every business must be insured against injury to workers on the job. Some may do this through self-insurance, i.e., setting aside certain reserves for this contingency. Smaller businesses purchase workers’ compensation policies, available through commercial insurers, trade associations, or state funds.

b. Automobile Insurance

Any business that uses motor vehicles should maintain at least a minimum automobile insurance policy on the cars, covering personal injury, property damage, and general liability.

c. Property Insurance

No business should take a chance of leaving unprotected its buildings, permanent fixtures, machinery, inventory, and the like. Various property policies cover damage or loss to a company’s property or property of others stored on the premises.

d. Malpractice Insurance

Professionals such as doctors, lawyers, and accountants will often purchase malpractice insurance to protect against claims made by disgruntled patients or clients. For doctors, the cost of such Insurance has been rising over the past thirty years, primarily because of more prominent jury awards against physicians who are negligent in the practice of their profession.

e. Business Interruption Insurance

Depending on the size of the business and its vulnerability to losses resulting from damage to essential operating equipment or other property, a company may wish to purchase Insurance that will cover loss of earnings if the business operations are interrupted in some way—by a strike, loss of power, loss of raw material supply, and so on.

f. Liability Insurance

Businesses face a host of risks that could result in substantial liabilities. Many types of policies are available, including procedures for owners, landlords, and tenants (covering liability incurred on the premises); for manufacturers and contractors (for liability incurred on all premises); for a company’s products and completed operations (for liability that results from warranties on products or injuries caused by-products); for owners and contractors (protective liability for damages caused by independent contractors engaged by the insured); and for contractual liability (for failure to abide by performances required by specific contracts).

Though most Insurance is available on a package basis, through single policies that cover the most critical risks, often called multi-peril policies. There are several forms of public Insurance (Social Security, disability, Medicare) and many private insurance firms. Both individuals and businesses have significant needs for various types of insurance to provide protection for health care, their property, and legal claims made against them by others.

3.6 Positive Impact of Insurance

1. Insurance provides economic protection to the insured.
2. It provides financial protection to the insured against unexpected losses considering a nominal amount called premium.
3. It provides financial protection to the dependent in case of pre-matured death of the insured.

3.7 Challenges for insurance companies.

1. Lack of trust.
2. Competition.
3. Mismanagement.
4. Economic instability.
5. Weak human resources.
6. Excessive politicization of the insurance industry.

4.0       The Nexus Between eNaira, Insurance and Business Operations

Emerging technologies and innovations are beginning to transform the insurance business around the globe and for the better. New technologies create novel ways to assess, manage and price risk, reduce costs and ultimately expand insurability. In essence, these innovations will reinvent the insurance industry. One noticeable impact of technology on the insurance sector is replacing the traditional middleman or agent-based concept. The main drivers for the technological changes by the InsurTech companies are Cost Reduction, Customer Engagement, Data Analytics, Development and Boost in Innovation. Artificial Intelligence software helps insurers automate many aspects of the insurance process, including risks assessment, fraud identification, and underwriting. AI also enables insurers to access data faster, and cutting out the human element can lead to more accurate reporting in shorter periods.

eNaira as an innovation of technology is not just another CBDC (Central Bank Digital Currency); it is a people-oriented digital currency leveraging technology to connect individuals and businesses for easy trading and financial inclusion. The introduction of eNaira to the Nigerian economy is an added advantage to insurance and business operations. It has come to redefine the business routine and make transactions easier among users.

Just as the apex bank said, it pushed the boundaries, bridged gaps, and told actual humane stories in making the platform. It also explained that from conception, the e-Naira had followed a careful thought and implementation process, beginning with understanding current realities in Nigeria’s evolving payment landscape, working with clear objectives and principles built from those realities, meticulously laying out the aspects of the architecture and infrastructure and keeping note of real-time risk management protocols like issues regarding cashless policy, National Financial Inclusion strategy, Bank Verification number, Shared Agent Network Expansion Facility, License categorization for the Payment System and Establishment of NIBSS Payment Infrastructure being some of the significant challenges confronting individuals and businesses were all put into consideration.

The Insurance industry is part of the larger financial services industry, including banks, brokerages, mutual funds, credit unions, trust companies, pension funds and similar organizations. The introduction of eNaira (Central Bank Digital Currency) as part of the new technologies in the Insurance business is one of the merchant organizations on the entire eNaira platform due to the nature of its activities enabling the performance of its features like the collection of premium on the insurance policy from the insured, payment of compensation and settlement of damages using eNaira Wallet ensuring the ease of service to be rendered among their various stakeholders as follows:

a) Insurance Company (Insurer) to their Financial Institutions (banks);

b) Insurance Company (Insurer) to Individuals / Organizations (Insured);

c) Insurance Company to Insurance Company; and

d) Insurance Companies to Nigeria Deposit Insurance Company (NDIC).

Going through the features, one notices that specific solutions are all-encompassing for individuals and organizations. It offers local and international Non-Governmental Organizations and Religious Institutions money transaction solutions that ensure that their focus is trained more on carrying out their projects than on the security and usage of the money backing each project.

While everyone can donate every time, the e-Naira is expected to make expense-tracking and report-development for social projects for NGOs nearly automated. This is as the traceability of each eNaira ensures that balancing ledgers and knowing the exact identity of the recipient of each eNaira occurs at near-real-time and in tandem with the very transfer of funds itself.

For business owners, eNaira payment options are expected to help keep customers coming back as they pay for services with such ease. Also, with eNaira, the customer base spreads beyond the shores of Nigeria because overseas payment is not just possible but fast and even cheap. According to the CBN, “the more the patronage, the more profit”. Also, eNaira makes it easier for business owners to get support allowance from the government because the CBN has their wallet information and can make direct deposits on behalf of the government.

The general acceptability of eNaira by the Insurance industry as part of their technology trends will minimize if not eradicate their challenges as mentioned above, influencing a better performance of their duties and responsibilities to various stakeholders while encouraging the transformation of the future in Insurance business. Also, as the CBN has stated that there will be no charges for peer-to-peer transactions and payments to merchants, consumers will make significant savings on what they would have paid if making payments through a mobile money service.

5.0 Conclusion and Recommendations

Nigeria has become the first country in Africa to launch its own central bank digital currency (CBDC). According to the CBN, the objective is to see eNaira enable households and businesses to make fast, efficient, and reliable payments while benefiting from a resilient, innovative, inclusive, and competitive payment system. The eNaira serves as both a medium of exchange and a store of value, offering “better payment prospects in retail transactions compared to cash payments. Business customers can quickly move money from their bank account to their eNaira Wallet. They can also make in-store payments using their eNaira Wallet by scanning QR codes. Individuals can monitor their eNaira Wallet, check balances and view transaction history easily. The platform allows users to send money through a linked bank account or card.

The CBN promises that the cost for sending and receiving money faster quickly will come at a very minimal price. There is always a transaction history, and as such, customers can verify their payments anytime and anywhere. As stated by the CBN, Intra/inter financial institutions transactions are not only possible, they are faster and cheaper, and transacting insurance business will surely follow this trend. In addition to this, customers can enjoy speedy transactions across boundaries and a hitch-free foreign exchange.

The government is also expected to experience an increase in revenue and this, according to the apex bank, is because, through a reduction in cash handling costs and more transparent taxing systems, eNaira makes more funds available for development projects such as better feeder roads, affordable education, and more equipped health facilities. It is projected that spending eNaira will make for a more prosperous Government and a more prosperous people. eNaira operation is also expected to increase remittances, foster cross-border trade, improve financial inclusion and enable the government to make welfare payments more efficiently and furthers that the adoption of a CBDC could improve economic activities and increase Nigerian GDP by $29bn over the next 10 years.

For the eNaira project to be successful, many Nigerians (including companies, Insurance and government agencies) will have to maintain e-wallets. However, eNaira could be troubled by some of the country’s current issues, including illiteracy, epileptic power supply, expensive and non-sufficient internet coverage, and the volatility of the Nigerian currency that needs urgent attention. Nevertheless, eNaira appears to be a step in the right direction to achieving an efficient business transaction across the board; insurance policy buyers within and beyond the shores of Nigeria can make transactions faster and even cheaper and, according to the CBN, “the more the patronage, the more profit.

This paper, therefore, made the following recommendations:

1. Insurers must seek the support of the government to enforce and promote the benefits of Insurance.
2. Insurers should improve their distribution and premium collection via eNaira to reach a more significant population.
3. There is a need to make a more robust legal infrastructure and discipline for fraudsters and saboteurs.
4. The Government and financial institutions should embark on eNaira enlightenment campaigns using all available means.
5. The CBN must ensure that all users’ data are well protected and save from fraudsters
6. There should be a handful of technical expertise across the insurance lines of business.

References

Abdulkareem, M. (2021) Businesses in Nigeria must accept e-Naira. CBN Publications.

How Insurance Companies Work – Small Business – Chron.com

Home

Rakiya Muhammed, director of the CBN’s IT Department,

Regulatory Guidelines on eNaira by CBN (2021)

Timi-Koleolu, S. T. & Eustace, A. (2021). eNAIRA – The Future Of Digital Currency In Nigeria?

Tochukwu, E., writing on the Inclusion Times website.

www.cbn.gov.ng Central Bank of Nigeria Press Release President

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