The nation’s insurance industry may have lost an estimated N220 billion in the past five years to rate-cutting on its two major business lines, fire and motor businesses, BusinessDay learnt.
The insurance brokers, who are the major intermediaries in the business of insurance contract, also lost between N15 billion and N22 billion on commissions during in the same period (2014-2018) as a result of rate-cutting, according to a report by Simba Chinyemba, Zenith General Insurance chief actuary.
Rate-cutting, meaning under-pricing of risk to outsmart competitor, is a highly dreaded monster causing major pain to the nation’s insurance industry. This has remained incurable as a result of high level competition in the industry that has pinched on pricing rather than innovation.
Rate-cutting is a major reason the industry growth is very slow and why many insurance companies cannot meet claims obligations, according to the National Insurance Commission (NAICOM).
Motor insurance and fire business are the second and third largest premium contributors to the overall industry performance year-on-year basis.
Motor business contributed N39.29 billion gross premium as at the end of 2017, out of the total N203 billion generated by the entire industry, while fire contributed N35.38 billion during the same period.
Industry analysts are optimistic that if the industry harnesses all the potential in motor business, given that third party is compulsory for motorists in Nigeria, by checking fake insurance policies, expanding to areas in the country where insurance accessibility is poor, as well as adequate pricing, the sector could generate over N100 billion annually from that line of business.
“I agree with the findings of the actuary, and it may even be underestimation,” Augustine Ebose, managing director/CEO, Anchor Insurance Company Limited, told BusinessDay in an interview.
Ebose noted that under-pricing of risk is a major problem of the insurance industry, expressing concern that in the midst of all these, claims are coming in their numbers.
Kehinde Borishade, managing director/CEO, Zenith General Insurance Company Limited (ZGIC), had during a broker’s forum organised by his company identified cut-throat rate-cutting and declining underwriting standards as some of the major challenges facing insurance business in Nigeria. Borishade said these challenges are real threats to the survival of our industry, calling for innovative approach to the business.
“We must continue to innovate better ways of managing our business in the most efficient, sustainable and profitable way, using best global practices as well as adapting these standards to our local environment,” Borishade said.
In 2017, NAICOM issued the price guide for compulsory insurances in a bid to end rate-cutting, unhealthy competition and inability of operating companies to meet claims obligation to policyholders.
NAICOM, whose core responsibility is to protect insurance consumers that pass their risks to insurance companies, warned operators to ensure strict compliance, assuring that the commission would monitor adherence.
Affected policies include statutory Group Life Insurance, Builder’s Liability Insurance, Occupier’s Liability (public building) Insurance, Healthcare Professional Indemnity Insurance and motor third party.
In a circular signed by Leonard Akah of NAICOM, statutory Group Life Insurance, which is a fallout of the Pension Reform Act 2004 as amended in 2014, shall be 6.8 per mil.
Rate for Motor Third Party, which incidentally has been the most abused, shall be for private motors N5,000.00; commercial motors (own goods) N7,500.00; commercial motor (staff bus) N7,500.00; commercial motor (trucks/general cartage) N25,000.00; motor trade (road/premises risks) N5,000.00; special types (ambulance/hearses) N5,000.00; motorcycle (power bike) N1,500; and official ride N1,500.00.
Modestus Anaesoronye
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