Insurers will witness significant increase in claims at the end of the 2016 financial year as result of dollar shortage, which has increased cost of assets replacement borne by insurance companies.
Underwriting companies collect premiums and in return replace loosed assets through payment of claims and this has gone up significantly due scarcity of dollars and particularly on imported goods.
Analysts say that claims will be higher than usual on motor insurance, a major segment of the business that contributes reasonably to premium size of the market.
Motor business accounted for 14.62 percent of total industry premium in 2014, equal to N42.91 billion and 14.88 percent equal to N39.85 billion in 2013, according to figures available in the NIA digest.
The implication of this development analysts say is that companies would be closing the year with reduced or lean profit margins, not only as result of high cost of production that has bedeviled the larger economy, but as result of rising claims payout to consumers.
Eddie Efekoha, chairman, Nigerian Insurers Association said there will be significant increase in claims this year, even though statistics are not yet available.
“We are actually experiencing rise in claims, and even on individual companies this is already showing in our books”.
As at the end of 2014 financial year, member companies of the NIA paid out claims amounting to N86.66 billion, as against N89.95 billion paid in 2013. While figure from 2012 business transactions show N72.21 billion payout on claims.
Efekoha who is also the managing director/CEO of Consolidated Hallmark Insurance Plc said member companies are replacing lost assets at very huge cost because of foreign exchange scarcity, stating that this has eroded profitability on motor business.
He said the same scenario applies to health insurance. Clients would have paid premium at the renewal of business late last year, and are coming for medical treatment today either locally or overseas, and all of these are coming at extra cost because of foreign exchange.
Efekoha however said the insurance industry was already abreast of the situation, and are devising strategies to remain afloat while making sure it meet claims obligations.
Either individually or as group, we are doing something. We have the officers committee of each segment of our business, be it motor business, oil and gas, fire & burglary or aviation and they are comparing notes and recommending solutions.
Feedback from some of the operating companies and their CEO’s show that existing insurers contracts in the current year were entered into when the naira exchange rate to the dollar was less than N200 around December 2015, while claims on loss assets are crystallizing at this time when the dollar to naira exchange rate is over N400.
They argued that replacement of loss vehicles or repairs on accident vehicles at this time is at a very high cost because prices of vehicles and their parts have gone up by over 40 percent because they are all imported and have been affected by high exchange rate.
Tunde Oluyemi, managing director, UnityKapital Assurance Plc said with the economic recession, it has been very tough though not only with insurance sector.
“I don’t want to look at the problems but I want to look at opportunities the problems present. The opportunities are such that the message we are getting is that we cannot continue to do things the same old ways. We have to think out of the box and we have to have better planning functions as we enter 2017.”
Funmi Babington-Ashaye, managing director/CEO, Risk Analysts Insurance Brokers Limited reviewing the economy said given the current economic challenge, insurers must step back and re-evaluate their product offerings. “The industry must take its bearing from the market place if it is to survive. Its product offerings should reflect the dynamics of the business environment and the needs of its diverse customers.”
Babington-Ashaye noted that the Insurance practitioners must deliberately strive to identify the needs of their consumers, plan products that will adequately meet those needs, properly price, promote and distribute those products such that both parties will mutually benefit from the process.
“Especially significant is the need to innovate as conditions change. This innovation may require the modification of existing covers or providing totally new options.”
Connect via email
- Oil falls on report showing OPEC deal compliance falling in July – Reuters
- AMCON – The reek of corruption and failure will not disperse – Naira Insider
- Refineries realise N62 billion from refined products – Guardian
- Naira gains slightly against dollar – Daily Post
- Naira Appreciates in Nafex, Parallel Market – Vanguard