Nigerian insurance underwriters are to blame for the low and unsustainable risk premium rates, stifling the much-anticipated growth of the industry, Ganiyu Musa, the group managing director of Cornerstone Insurance Plc has said.
Speaking at the Cornerstone Insurance Plc 2023 Brokers engagement meeting held in Abuja, Musa raised concerns that insurance premiums in Nigeria are largely underpriced, as underwriters deviate from the basics of the profession and have collectively driven rates to an unsustainable level.
Musa, said premium underpricing, has cut down profitability across the insurance industry to a level far below other sectors of the financial services sector.
He reiterated that insurance being a specialized subject area is guided by a number of technical and professional considerations, as pricing is done on certain underwriting principles, technical rating, on risk management amongst others.
“However, as an industry, we have deviated from the basics of our profession, in the sense that we have all collectively driven insurance rates to levels that are not sustainable. And that is why we are suffering. Our profitability across the industry is below par. It is not comparable to what you have in the other arms of the financial services industry,” Musa lamented.
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Drawing an analogy, he explained that the banking industry which is faced with similar regulatory constraints do better with pricing and in a unified manner than what obtains in insurance.
He notes for instance that “If the CBN says you cannot lend for more than 21 percent, or that you cannot pay less than two percent interest on current account, for the banks, that maximum lending rate is what applies to the majority of their customers. If anything, in addition to the specified lending rate they also charge documentation fees, legal fees, such that at the end the customer is borrowing above the specified rate.”
“But for us as insurers, faced with a similar regulation that says, for instance, motor premium should not be more than 10 percent, while the banks will take that rate as the minimum that they charge, insurers take that as the maximum and then drives it down.”
He said until December when NAICOM came to their rescue with a new guide on rating, the motor premiums had gone down to as low as one percent in certain cases.
Cornerstone, a Tier 1 Insurance Company in Nigeria reported some N4 billion Gross Premium growth in 2022 to N24.6 billion as against N22.3 billion that it posted in the 2021 financial year.
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