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Chiamaka Ajeamo, [email protected]
The insurance industry is currently enmeshed in a battle to stem rising claims costs that tend to outstrip premiums collected on insured risks, making it difficult for most of them to declare sufficient profit to shareholders and investors.
The rate-cutting practice is already taking its toll on the profitability of insurance companies as premium, which is the price of a policy, charged by underwriters is now too low for them to record significant profits after settling the monstrous claims.
Findings from Daily Sun revealed that in the last five financial years, the insurance industry had devoted 50 per cent of its profit to claims payment while the remaining 50 per cent was used to cover operating costs and management logistics leaving most underwriters either making loss or declaring meager profits.
It was also learnt that in other economies, insurance premium is usually charged based on the value of the risks, while in Nigeria, unhealthy competition among operators for the same line of risks have made them sworn enemies, thereby, cutting prices of policies to unimaginable rates that it no longer makes business sense.
Despite the consequences of this developement, most operators still indulge in this act, so long as they are able to outbid competing underwrters for risk.
A recent data presented by the Nigerian Insurers Association (NIA), disclosed that in the last 10 years, (2009 to 2018), the industry’s claims payment to policyholders increased astronomically from N27.1 billion in 2009 to N207.4 billion in the last financial year.
According to the report, the N207.4 billion claims expense stands as the highest payment figure recorded in the past 10 years in the industry, adding that, the claims cost was about 80 per cent higher than the N142.8 billion paid to policyholders in 2017.
Further analysis of that data showed that in the last five years, counting from 2014 to 2018, there was a sharp increase in claims roll-out which surpassed the growth in premium recorded.
Premium generated by the industry in 2014 stood at N293.5 billion as against N87 billion of claims settlement; indicating a 29.6 per cent increase, in 2015, there was a 33.6 per cent increase with a premium income of N312.5 billion to claims payment of N105 billion, while 2016 recorded a premium income of N315.9 billion as against claims of N119.6 billion showing a 37.8 per cent increase and 2017 witnessed a 39.1 per cent increase as claims payment stood at N142.8 billion with a premium income of N365 billion.
The peak of this was in recorded in 2018 when insurers settled claims with the 50.2 per cent (N207.4) billion of the N413 billion premium income generated for the period.
Against this backdrop, the industry operators have raised the alarm that if rate-cutting was not curbed, and claims cost continue to grow astronomically as it is, most of them might be out of business sooner than later.
However, investigation shows that the industry is actually making over N1 trillion business yearly, but losing 70 per cent of this to rate-cutting, while also discounting most of the profits to intermediaries and insurance consumers.
Further findings revealed that, in a bid to remain afloat, some overzealous insurers are now perpetuating this unethical practice, as they go about hawking third party motor insurance policies, which statutorily goes for N5,000, for a paltry sum of N1000.
Mr. Sunday Thomas, while he was the Deputy Commissioner, Technical, National Insurance Commission (NAICOM), said: “The risk insurers are carrying is over a trillion Naira and the premium is still at N350 billion. We(insurers) take 30 per cent and discount 70 per cent.” This statement was made two years ago and the practice is still on till date.
Speaking at the 2nd Annual Interactive session with consumers of insurance products organised by the National Insurance Commission (NAICOM) in Lagos, the Chairman, Nigerian Insurers Association (NIA), Mr Tope Smart, expressed concerns over the constant increase in claims value as against premium rate.
Smart noted that insurance business is synonymous with claims; in fact, insurance companies are in business because to pay claims when an insured risk occurs.
He added that premium, being the cost of an insurance policy, is taken to indemnify a policyholder and return him back to the financial position he was before disaster struck, hence for an insurer to be in business, insurance policy must be sold at an appropriate price to ensure that such underwriter does not go bankrupt and the policyholder does not feel cheated in the long run.
“Claim is a fundamental part of insurance, policy purchased by a consumer is a promise of compensation when things go wrong, provided the circumstances fall within the policy’s terms and conditions,” he said.
Smart who was represented by the Director of Operations, NIA, Mr. Lanre Ojuola, emphasised that “insurance policy is expected to provide help in time of troubles, put smiles on the face of the insured, share their burden and grief with the insured, give the insured hope, and instill confidence in the insured.”
He pointed out issues such as; late notification, false statement that makes claim suspicious, failure to take preventive measures, lack of proper documentation and exclusion clauses as reasons that result to the late or non-payment of claims to policyholders. He also highlighted some of the challenges confronting the industry as lack of public trust, unhealthy competition among the operators, mismanagement, economic instability, dart of man power, fraudulent activities of customers stating that industry operators are working to overcome the challenges.
Meanwhile, speaking earlier in a keynote address, the Acting Commissioner for Insurance, Mr. Sunday Thomas, said that customer’ satisfaction was central to the sustainability and success of every business, insurance inclusive.
Thomas noted that the Commission, was aware of some of the obvious challenges bedeviling the sector either on the side of operators, consumers, investors or regulator.
Thomas, who was represented by the Director, Head Office Branch, NAICOM, Adamu Balanti, said that from the regulatory perspective, policyholders remains a key component of its primary constituency and therefore must ensure they are treated fairly and protected as enshrine in the relevant laws; while at the same time balancing the supervisory role of ensuring financial soundness and reliability of insurance institutions in the country.
According to him, the Complaints Bureau Unit of the commission, had been working diligently to resolve policyholders’ issues relating to non-settlement of claims, contract agreement violation, among others.
“NAICOM is well positioned to ensure adequate protection of policyholders at all times. As you may all be aware, the topic on consumer protection has become central to regulators around the globe and the insurance sector is not an exception. Continuing efforts and new reforms are being put in place by NAICOM to ensure prompt payment of genuine claims by insurers.
“There is no doubt that we all desire a paradigm shift from the current state of our industry to a better state where we will not be grumbling on issues of prompt claims settlement, pricing of insurance products, value for money, innovative products etc”, he said.
He added that the recent developments and reforms in the sector particularly, the recapitalisation exercise is a move to ensure that the industry becomes more robust in its technical competence and financial base, the end result of which will be to enhance the ability of insurers to provide better protection and improved services to the customers.
