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Insurance market gets breather on pricing as fire risks turn nasty

Insurance market gets breather on pricing as fire risks turn nasty

The decision of reinsurance companies to back away from providing coverage on certain risks, particularly fire business due to rate cutting, otherwise called under-pricing has brought a breather to the Nigerian insurance market.

In the new dispensation, risks are properly priced thereby giving insurance companies the advantage to generate appropriate premiums and earn returns on investment to be able to meet claims obligations.

While the reinsurance companies through its trade body the Professional Reinsurance Association of Nigeria (PRAN) are believed to have warned the war against rate cutting especially in the fire business, strong regulation by the National Insurance Commission (NAICOM) has done price market correction on motor business.

Fola Daniel, chief executive officer, of FBS Reinsurance Limited (FBS Re) said what they have done as reinsurers was to rate risks based on loss experience and fix a benchmark rate that will enable a commensurate premium for various risks.

“What we have done locally and even at international levels by reinsurers, is to rate risks based on loss experience and fix a benchmark rate that will enable a commensurate premium for various risks.”

Daniel who is also the former commissioner for Insurance said the reinsurers do not control what insurance companies do.

“In fact, they can underwrite a risk for free, but what reinsurers are saying generally, is that, if for this class of business, the rate is less than the minimum, you cannot cede it to the treaty.”

“You can take it for your net account, thus self-reinsuring. The real strength of an insurance company is the reinsurance backing it has, so, if you do not have reinsurance backing, you would be wise to curtail the level of your acceptances to reside within your risk tolerance levels.”

He said in Nigeria, PRAN took a keen interest in the rating of risks, to curtail rates of abuse. These measures are certainly yielding positive results in driving rates and pricing sanity, he said.

Simba Chinyemba, Zenith General Insurance’s chief actuary had described rate cutting as under-pricing of risk to outsmart competitors, stating that it 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), he said.

In his report on rate cutting, he said the nation’s insurance industry may have lost an estimated N220 billion in five years (2014-2018) to rate-cutting on its two major business lines, fire and motor businesses.

“The insurance brokers, who are the major intermediaries in the business of insurance contracts, also lost between N15 billion and N22 billion on commissions during the same period (2014-2018) as a result of rate-cutting, according to a report.

Motor insurance and fire business are the second and third largest premium contributors to the overall industry performance year-on-year basis.

“I agree with the findings of the actuary, and it may even be an underestimation,” Augustine Ebose, managing director/CEO, of 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.

NAICOM had effective 1st January 2023 reviewed the premium on motor insurance policies.

Under the new pricing, private vehicles that were paying an N5,000 premium for an N1 million Third Party Property Damage (TPPD) limit, now pay an N15,000 premium for N3 million, while owner good vehicles pay an N20,000 premium for an N5 million compensation limit, and staff buses pay N20,000 premium for N3 million.

For commercial trucks and general cartage, they are paying N100, a 000 premium for an N5 million TPPD limit; tricycles N5, 000 for an N2 million TPPD limit, and motorcycles N3, 000 for an N1 million TPPD limit.

For a comprehensive motor insurance policy, the premium rate shall not be less than five per cent of the sum insured after all rebates and discounts.

Dipo Olarewaju, president of, the Institute of Loss Adjusters of Nigeria (ILAN) said the role of NAICOM in regulating the price of motor business has addressed the problem of rate cutting in that segment of business.

He wishes that NAICOM would also review and regulate the scale of fees for loss adjusters.