Insurance subscribers to pay more as inflation changes asset value dynamics

The current dollar scarcity and attendant inflation in Nigeria, which have affected the prices of imported commodities, have changed the value dynamics of insured assets,  making subscribers pay more, to match market realities.

The price of assets has gone up by 100 percent in the last one year. This means that an insured asset, for instance, a Toyota Camry saloon car, worth N8 million a year ago, could be sold for N24 million today. If lost today, it will require that the customer provide additional N16 million from his pocket, after receiving insurance pay-out, to be able to replace the car.
Otherwise, the customer may have to reach for a smaller car, which would cost less.

With this development, customers would have to pay extra premium to put their insured asset at the same value with market realities.

Analysts who interpreted the development said asset value has been over-taken by inflation in the past one year. As such,  assets can only match market reality if the sum insured is increased, which will mean additional premium.

Jide Orimolade, managing director/CEO, Law Union &Rock Insurance Plc said, “when we noticed the rate of inflation over asset value has gone through the roof, we quickly wrote our clients to be in the know.
“We asked them to increase their insurance value and pay extra premium, and I can tell you some of them did, because they know why they took insurance in the first place.”
Orimolade said it was a matter of choice because insurers will pay the agreed sum assured in the event of total loss.
He noted that the situation was easier in the case of motor vehicles, that it was worse in some other general assets where averages apply.

Ganiyu Musa, group managing director/CEO, Cornerstone Insurance Plc who confirmed the impact of inflation on the value of insured assets, said it was an economic problem which affected every facet of the economy. “Every part of the economy felt this readjustment, no matter which part of the country you operate from”.

Musa said the impact was a two-edged sword which affected both the insurer and the insured.
“If the loss is not total, the insurer bears huge claims cost to replace damaged assets. But if it is total loss, the insured gets his insured value, but whether he will be able to buy the same quality of vehicle again, is a different issue.
“What we did as a company was to inform our clients about the level of inflation and possible impact on asset replacement, and many of them reviewed their assets”, he said.
He noted that some of the clients reassessed their assets to meet market realities. Insurance is a promise of compensation for specific potential future losses in exchange for a periodic payment called a premium.
Insurance is designed to protect the financial well-being of an individual, company or other entity, in the case of unexpected loss.
When you buy insurance, you transfer the cost of a potential loss to the insurance company in exchange for a fee known as the premium. Insurance is there to provide protection for you, your investment and your business.
Dotun Owolabi, an insurance broker said disaster could take any form; car theft, property fire, accident or sickness that could lead to major distractions.
“Insurance gives you peace of mind and you know that if anything happens to you, your family or your business, that you will be financially secure.”

 

Modestus Anaesoronye