The insurance regulatory authority, the National Insurance Commission (NAICOM), says the country’s current foreign exchange crises and high inflation will affect insurance claims, particularly the life business.
The Commission said this is when the insured needs to revalue their assets to get maximum benefits in the event of extreme losses.
Sunday Thomas, the commissioner for Insurance, disclosed this at the ongoing Seminar for finance journalists in Uyo, Akwa Ibom State.
He explained that, as usual, asset replacement becomes an issue in times of this exchange rate and inflation.
Read also Insurance sector penetration still low, records N312b premium Q1
“Under the present circumstance, the wise need to adjust the value of their assets to derive maximum benefits because when the value is increased, it means claims can meet replacement.”
According to him: “When we have this less level of the exchange rate, assets replacement becomes an issue, and when you get to the position where assets that were acquired at a particular amount, especially assets that are foreign exchange dependent, people are not quick to revalue their assets.”
He further stated that life insurance is worst affected by inflation, such as the present situation.
“Of course, the fact is that where there is inflation, life insurance is worst hit because the value of your claim will be badly affected.”
Thomas, however, expressed optimism that the negative impacts will elapse as the federal government strives to stabilize the economy through various initiatives.
“But you see what we are going through as a nation; I believe it is temporary. Two things happened: the issue of subsidy removal and the issue of consolidation of the exchange rate. All these are at the point of policy change, and there is bound to be a pushback.”
“So, what we are experiencing now is all pushback. Pushback is bound to affect every sector of the economy, including Insurance.”
Read alsoNAICOM want brokers upscale model to cushion subsidy removal shocks
“But if you look at what is happening now, the exchange rate is adjusting downwards. However, there are things still being done, and by the time the entire initiative materializes, it will find its level, Thomas said
The Commission expressed optimism that even if the level didn’t revert to what before, it would not be as bad as it’s currently being experienced.
Thomas also noted that insurance companies, like other facets of the economy, also witness high production costs.
“Cost of production has gone up, wage bill, transportation and all of these will an impact the bottom line.”
Thomas said shareholders will also share the pains regarding dividends.
