The increasing rates of unemployment and poverty in Nigeria are having a negative impact on the insurance business. Africa’s most populous nation has over the last three and a half years witnessed high rate of job losses and deepening poverty level.
Unemployment rate in Nigeria increased to 23.10 percent in the third quarter of 2018, from 9.9 percent in the third quarter of 2015, according to data from the National Bureau of Statistics (NBS). Similarly, more Nigerians have slid into poverty, with about 87 million Nigerians in extreme poverty as at the end of May 2018, and six Nigerians sliding into extreme poverty every minute, according to a June 2018 Brookings Institution report.
As a result, the insurance industry, particularly life business, has seen rising policy surrender following the inability of policyholders, who are seeking cash value to meet basic needs, to continue payment of premiums.
This development has led to increase in claims paid by insurance companies to their policyholders who voluntarily chose to terminate their policies. The cash surrender value is the sum of money an insurance company pays to a policyholder or an annuity contract owner in the event that his or her policy is voluntarily terminated before its maturity or an insured event occurs.
Sometimes after owning life insurance for a number of years, people have changes in their lives. They could surrender their life insurance contracts as one of the first ways to pay unexpected expenses such as house rents, new business, or to get through a period of unemployment. For the general insurance business, the response to the economic situation is usually reduction in policy coverage or breaking of premium payment in bits to suit income flow.
“We are witnessing increasing level of policy surrender in our life business more than we saw some years back,” said an insurance CEO who preferred not to be mentioned. “I suspect that it is in response to the economic situation. Some people who lost their jobs are yet to get new one; some need cash to pay their children’s school fees, and some want to complete their house project,” the CEO told BusinessDay.
The fact that insurance money comes handy when one is down, he said, is one of the benefits of insurance that many people do not know. “Policy surrender does not stop you from paying your premium because there is a life cover that accompanies the policy, which becomes another booster in the event of the unexpected,” he said. For instance, Mutual Benefits Life Assurance, a member of Mutual Benefits Group, paid N13.05 billion in claims between January and August 2018.
Analysis of the claims paid in life business during the period shows that clients’ maturity benefits accounted for N5.50 billion, while surrender benefits was N4.9 billion. The life business also paid N2.6 billion in death benefits to dependants of deceased insured, while N34 million was paid as death claims. Sovereign Trust Insurance plc in 2018 settled claims totalling N4.24 billion to various insured across the country.
Segun Bankole, head, corporate communications, Sovereign Trust Insurance plc, said the claims paid in 2018 were quite humongous, attributing this to the downturn in the economy. “Every insured wants to claim at every given opportunity which really escalated the claims figure for the year,” Bankole said. Niger Insurance also paid N2 billion in 2018 to policyholders in the life and general business.
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