Following huge claims experience in 2018 financial year, which resulted to huge underwriting losses and poor bottom lines for most insurance companies, operators are more than ever before cautious of the businesses they admit into their books.
Last year saw insurance companies in Nigeria paying claims in excess of N160 billion from total premium income of N400 billion, indicating about 14.3 percent increase over 2017 claims figure of N140 billion.
The claims, which operators lament, came mostly from oil and gas risks, particularly Egina FPSO claims in the neighbourhood of N50 billion.
Other major claims in the industry were also from aviation and maritime risks, which many companies lament pushed their bottom lines to negative during the 2018 financial year.
Analysts have noted that insurance companies are grappling with declining underwriting profit arising from falling rates due to unhealthy completion and craze to get from few available businesses, particularly corporate accounts.
In this vein, operators in a bid to survive resort to rate cut, which has further eroded premium volume, underwriting profit and more pressure on bottom lines.
Consequently, claims are rising at unprecedented rate more than ever witnessed in the industry, particularly since the last economic recession when many Nigerians have resorted to taking advantage of every opportunity in their hand to earn extra income or reduce expenditure.
Incidentally, insurers have seen increasing claims filling at very slightest loss (accident) cases, especially on motor insurance policy, which hitherto were ignored by most insured public.
Some of the operators who spoke with BusinessDay, said, “we are being cautious on the type of risks that we take because the claims are coming in droves. We have to watch our back so that we do not erode our shareholders fund,” one of the chief executives said.
Meanwhile, while the industry was grappling with these challenges, companies boards were looking behind the numbers and these has seen no fewer than three employee chief executives relieved of their jobs over what has been described as non performance, while some others are seriously under watch.
At majority of the insurance company’s annual general meetings held this year, one common excuse that were given to shareholders as reason for high underwriting losses were oil and gas claims particularly on Egina loss, which many of the companies participated in.
Remi Babalola, chairman of Law Union and Rock providing clarifications to shareholders during its Annual General Meeting in Lagos, said you are all aware of big claims that befall the industry in 2018, which we all took part in.
He said, “We should be happy that our company was able to meet its claims obligation to our customers because that is why we are in business.”
But Tola Adegbayi, executive director, General Business at Leadway Assurance Company Limited said, for me the case of Egina which we are lead underwriter is not uniquely different from any other risk in the market.
She said’ I hear people say it is the biggest claim in the market; it is not, because we have had bigger claims before now.
Adegbayi however noted, “we encourage underwriters to take adequate risk management through reinsurance, but you see some greedy once will take risks and fail to reinsurer adequately and these are the people that will be complaining about huge claims.
Insurance is about paying claims, and that is what you owe to customers, Adegbayi noted.
Owolabi Salami, executive director, Allianz Nigeria said, “it is not every risk we accept. If the pricing is not good we reject it because you can’t be sure when the claims will come, but definitely it must come.”
He noted that a lot of companies today will have problem asking for new capital from their shareholders because you must justify why you will be given more money, and that will depend on what dividends you have paid in the time past.
According to Salami, checking rate cutting and poor pricing will become effective when boards now are able to sack CEO’s when they fail to perform, and there are then, lessons will be learnt about appropriate pricing and creating shareholder value.
On rising claims and importance of reinsurance, analysts at A.M. Best notes that reinsurance partnerships are the cornerstone that provides the capacity for insurers to profitably write businesses.
They note that this has enabled Caribbean market weather two years of heavy catastrophe losses with little or no major operational impact.
“These longstanding partnerships have proven to be extremely resourceful in the context of prudent catastrophe risk management, given that exposure to natural catastrophes is the greatest peril faced by carriers operating in the Caribbean, the agency said.
According to the rating agency, most insurers in the region continue to maintain conservative, yet robust, property reinsurance treaties, employing a combination of property and excess of loss treaties, and in many cases purchasing reinstatement premium as cover for second and third events.
