Experts have identified reduction of the size of companies, evolution of specialised products, collaboration among stakeholders, adoption of retail market and more as panacea to sustaining good rates on insurance products.
Olutayo Borokini, managing director, Royal Exchange General Insurance Company said the issue of falling rates, can only be addressed through proper diagnosis of the industry, adding that presently, there are too many players for the businesses that are available. He noted that South Africa, as big as it is, in terms of insurance penetration, has about 15 insurance companies.
He wondered how possible it is, to effectively control 60 insurance firms in Nigeria, stressing that in most cases there are about five underwriters on a particular business, and if the five reject a risk, a brokers who has the business still has an opportunity to take other five in the market and can continue until he exhausts all available underwriters in the industry.
He said: “The bane of the industry is rate cutting. Because of the number of players in the market and with few businesses available, coupled with the weak economy, we have more demand than supply. And there are no new businesses, so there are intense competitions. “With the competition, some operators have to lower the price in most cases. There are supposed to be industry standard, but it is not adhered to. Competition has forced down the prices of insurance products.
“The issue is also complicated by multi-nationals. Because most manufacturing firms owned by multi-nationals have to contend with the cost of doing business in Nigeria, which is very high, they try to manage their cost and one of the areas of doing so is insurance. For an example, the management of a company would tell their broker, we are not ready to spend more that N100 million on insurance for a year, how you are to structure the programme is up to you.
“Then the broker would go around shopping, trying to beat down rate through reduction in prices. That would force the price down. That is the trend we are having now. Most of the industrial risk businesses are not well priced. In some cases the re-insurers have to intervene by rejecting the risks.”
He told Insurance and pension online that the future of the insurance companies lies in retail, adding that the growth of the industry in past years has been skilled towards wholesales which has narrowed the distributive channels of operators
