‘No Premium No Cover’ undermines Staco Insurance premiums

The ‘No Premium Cover policy introduced by regulators in order to ensure that operators are liquid has undermined Staco Insurance premium income as the insurer posted a loss of N1.85 billion to end the 2016 financial year.
Gross premium written was N5.40 billion in December 2016 as against N6.18 billion the previous year. Net premium income fell by 23.07 percent to N3.60 billion in the period under review as against N4.68 billion as at December 2015.
“There was a decrease of 12.33% and 15.96% in gross written premium respectively for group and company in 2016 in comparison with 2015 due to the reality of no premium no cover policy that was put in force by the  Nigerian Insurance Industry regulator,” the company said in its Management’s Comment and Analysis.
A combination of weak top lines and rising operating expenses was responsible for Staco Insurance 2016 loss.
The Nigerian insurer has an operating expenses ratio of 94.05 percent, which means it spent nearly its entire net premium income to fund the its operational costs of close to N3.4 billion.
The National Insurance Commission (NAICOM), the body that regulates insurance business in Africa’s most populous nation introduced the ‘No Premium No Cover’ Policy in order to make the government more committed to premium obligations and make it pay large amount of debts it owed the insurance industry.
“The receipts of an insurance premium shall be a condition precedent to a valid contract of insurance and there shall be no cover in respect of an insurance risk unless the premium is paid in advance,” Section 50 of the Insurance Act says.
Apart from the negative impact of the aforementioned policy on the performance of Staco, the economic downturn created apathy towards the insurance industry.
A recession caused by a sharp drop in the price of oil and a severe dollar shortage rendered consumers impotent and unable to acquire properties worth insuring.

Rising unemployment evidenced by layoffs means insurers lost premium they would have made on employee contributions.

Insurance contributed less than 1 percent to the country’s GDP in 2016.
A recent survey by the Chartered Insurance Institute of Nigeria (CIIN) revealed that about 86.6 million Nigerians do not have any form of insurance cover.

In spite of all these challenges, Staco Insurance remained profitable and efficient as combined ratio (CR) stood at 57.77 percent, lower than the 100 percent threshold.
The Nigerian insurer’s total net claims plunged 37.50 percent to N1.05 billion; claims ratio dropped to 29.16 percent in December 2016 from 35.89 percent as at December 2015.

Staco Insurance made underwriting profit of 1.70 billion in the period under review compared to N2.19 billion the previous year.
Analysts say a rebound in economic growth spurred by the relative calm in the Niger Delta region and an uptick in oil price could ease liquidity in the system and spur insurers to growth.

 

BALA AUGIE