Insurers to raise premium for corporates on rising claims

Corporate insurance consumers in Nigeria may see increased premium on major classes of risks following rising cost of reinsurance, foreign exchange and inflation.

With dollar rate now at roof tops and replacement cost almost unbearable, local insurers are beginning to see resistance from reinsurers who are asking for upward review of premium, according to industry sources.

They say fire insurance is most affected having recorded an unprecedented rise in claims over a period, particularly from the manufacturing sector.

Professional Reinsurers Association of Nigeria (PRAN) about a month ago released what it described as 2021 Fire Insurance Underwriting and Pricing Manual, asking for a review of the price of risks it was providing for underwriters.

Reinsurance is the practice where insurers transfer portions of their risk portfolios to other parties by some form of agreement to reduce the likelihood of paying a large obligation resulting from an insurance claim.

It is an insurance policy an insurer purchases from another insurance company to insulate itself (at least in part) from the risk of a major claim event.

While the proposal is still being looked at by the Nigeria Insurers Association (NIA), the umbrella arm of the underwriters, the brokerage arm of the industry who is direct intermediaries with consumers of insurance has rejected the proposal.

Rotimi Edu, president, Nigerian Council of Registered Insurance Brokers (NCRIB) reacting to the development, says the council considers the proposed review unacceptable to its members and the insured public in view of the fact that the Council was not carried along in determining the new pricing.

Edu states, “In a swift response to this, we directed the Joint Technical and Legal Committee of our Council to expeditiously meet to review and make recommendations to the Council.”

According to Edu, the Committee had met to critically appraise the guidelines as well as its implications on insurance broking.

“Among other things, it is being resolved that members should put their clients on notice about the newly released rates to be introduced by the NIA and PRAN and their after-effects on the insurance market,” he says.

The NCRIB has written to PRAN, NIA and the National Insurance Commission (NAICOM) on the need to immediately suspend the released manual for a minimum of nine months pending further discussions and engagement by the Council, he states.

Nigeria’s insurance brokers, it would be recalled, control about 70 percent of the market share and determine largely who gets what in terms of business, so remains the toast of the underwriting companies.

Edwin Igbiti, managing director/CEO, Niger Insurance, says it may not be out of place to ask for review on the premium paid on certain classes of risks, particularly fire insurance, because claims on that line of business have been very huge for some time.

According to Igbiti, reinsurers bear larger proportion of claims on that class of risk most times, and so have seen increased loss ratio that may require review of price to recoup.

Yes, brokers have a good reason to kick against it if they were not carried along because it is their responsibility to pass such information to their clients, because there are clients that have not made claims at all, and there are others whose risks contributed to the losses, so all of that will have to be considered, he notes.

Another underwriter who does not want his name mentioned says a review for the pricing has become necessary due to foreign exchange gap and high inflation, which has increased the prices of almost everything in the market.

He notes, replacement cost for motor parts now is on the rooftops. Just imagine that you have insured a vehicle in January 2021 at a prevailing price of motor parts then, and today there is a replacement cost to bear due to an accident. So, you can see it is no longer a laughing matter, he states.