Following major claims experienced in the 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, a 14.3 percent increase over the 2017 claims figure of N140 billion.
Operator’s say the claims 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 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 put 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 members of the public.
Some of the operators who spoke to Business day said, they are being cautious on the type of risks that they 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, speaking anonymously 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 was 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 befell 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 the case of Egina, for which they are lead underwriters 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 one’s will take risks and fail to reinsure 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 added.
Owolabi, Salami, executive director, Allianz Nigeria said, it’s 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 they must justify why they need to be given more money, and that will depend on what dividends have been paid in the past.
According to Salami, checkmating rate cutting and poor pricing will become effective when boards are able to sack CEO’s when they fail to perform, and then lessons will be learnt about appropriate pricing and creating shareholder value.
On rising claims and importance of reinsurance, analysts at A.M. Best note that reinsurance partnerships are the cornerstone that provides the capacity for insurers to profitably write businesses.
They note that this has enabled the 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 disasters is the greatest peril faced by carriers operating in the Caribbean,” the agency said.