By Rosemary Onuoha
THERE are apprehensions in the insurance industry over allegations that some insurance operators have cleverly created means of giving out discounts on compulsory classes of insurance thereby bypassing the pricing policy by the National Insurance Commission, NAICOM.
Consequently, concerned stakeholders are worried that the development could pose a threat to industry claims payment ability which could erode the confidence that is gradually returning to the sector.
Although NAICOM put a peg on compulsory classes of insurance earlier this year, Insurance Vanguard investigations reveal that some operators have found ways around it to give out discounts just to get the businesses at all cost.
NAICOM officeThe objective of the compulsory insurance policies is to provide protection to third parties as well as the general public and they include builder’s liability insurance; employer’s liability insurance; motor third party liability insurance; occupier’s liability insurance; as well as healthcare professional indemnity insurance.
Insurance Vanguard findings reveal that while operators are lamenting the huge volume of claims that they have had to pay this year, the discounts being given out could further undermine the capacity of the insurers to pay claims even as claims obligations continue to rise.
Gross claim figure as at the third quarter of 2018 increased by 30 percent to N143 billion from N110 billion in 2017. This is even as gross premium income recorded 22 percent increase to N315 billion from N258 billion in the corresponding period of 2017.
Killing the poor & desperate with shylock rates
Despite the 30 percent increase in claims settlement, experts believe that all is not well yet with the sector, especially in claims settlement capacity.
Speaking to Insurance Vanguard, Deputy Commissioner for Insurance, Technical, Mr. Sunday Thomas, said that the development is a cause for worry to the regulator.
Thomas stated: “It is so sad to hear that operators, in their ingenious ways, are beginning to grant discounts even to the compulsory rates. There was a time in the market when 12 percent rate was charged for comprehensive insurance and it was sacrosanct. At some point it came down to five percent and that became the standard. There was a time when some were charging as low as one percent.
Charging ofappropriate rates
“Also, there was a time when third party was N5,000. It came to a point when people were charging N1,000. Sometime ago, the federal government, through the Head of Service, reached out to the Commission. They told us to consider that the budget has been passed and that they cannot pay the new compulsory rates. We insisted that they pay the new rate, because there is no way the Commission is going to change its position.
“That is why, for government accounts, nobody is going to ask you to bring any rate that is less than what the Commission mandated. We insisted that if you want them to pay your claims, you must allow them to charge the appropriate rates. Unfortunately, operators have crafted ways of giving discounts even on these government accounts.”
Thomas said that the industry needs the cooperation of operators if a reasonable income and profit figure is to be realized at the end of the financial year.
Commenting on the development, President of the Chartered Insurance Institute of Nigeria, CIIN, Mr. Eddie Efekoha, said that the volume of claims paid so far this year is huge, as such there is need to charge appropriate rates.
Efekoha stated: “The loss ratio has not helped us because we have had a lot of claims paid. A worrisome trend is that some major customers are taking us to court over adjustments in claims. The major buyers are taking our money and even taking us to court and it becomes very sad. They take your money which you cannot recover say in ten years time, yet at the other end they are taking you to court for wrong adjustments and all of that.”
Speaking on the development, Thomas said that appropriate, prompt and adequate claims settlement remain the bedrock for success within the insurance industry. He added, however, that appropriate premium must be charged.
He stated: “You tell me one company that is doing well, I will tell you that their history in claims settlement is positive. The correlation is positive, you can’t fight that. And if a company is not growing or is on a downward slope, the first point of check is how they react to claims settlement.”
Thomas said that there is no reason for operators to cut rate because it will be to their disadvantage.
He said, “It beats my imagination why anyone will want to cut itself. There is no way the regulator can go after everybody, it is difficult.’’
Thomas stated that other sectors flaunt laws to boost their revenue but insurance operators do so to reduce theirs.
He further stated: “I did a comparative analysis between the banking sector and the insurance sector. The Central Bank of Nigeria, CBN, will put a cap on interest rates for certain sectors.
The banks will violate the rates not by reducing the rates but by increasing the rates using other terminologies such as administrative fees, this expense and that expense. If CBN says the rates should not be more than nine percent, the banks will charge 11 percent.
“But insurance operators also commit the same offence by violating the law. However, rather than do it to their own advantage, they will rather reduce the rates, which I still don’t get.
“So it is obvious that banks flaunt the law but in their case they flaunt it to increase their portfolio. However, in our case, we short circuit and flaunt it to decrease our portfolio. The two are offences but in one, you commit offence to enhance your volume, the other person commits offence to reduce his portfolio and you start to wonder, does he make any sense?
“So there has been a 30 percent growth in claims settlement, but that is not to say that all is well with us in the area of claims settlement. We will still continue to push ourselves to the point that it becomes rare to find a situation where there is a claim that is not settled. That is where we want to reach.”
Managing Director of Prorisk Insurance Brokers, Mr. Oluwagbemiga Olawoyin, added that the ideal way to meet all claims obligation is to price right.
He said, “A situation where there is a major loss on an account, and the next year the insurer decides to reduce the premium by half, doesn’t speak so well of practitioners. If you are trading with your shareholders fund or capital and you think that is the best way as management to deploy your capital, all well and good. But if we must do well as an industry and as operators, we must price right, so that we can live up to our expectation or obligation to all stakeholders.”
Former President of Nigerian Council of Registered Insurance Brokers, Mrs. Laide Osijo, said that the underwriting expenses of insurance companies are trending towards the high, so there is need to price right.
She said, “The underwriting expenses of insurance companies are trending towards the high side now because most of them are actually taking up the task of redressing the fears of investors and insurance customers. In the past it was a lukewarm expense portfolio because most of them just want to make profit.
This time around, they are showing commitment and they are allaying the fears of most of their customers. That is why we are seeing a drastic increase in claims payment, however, this calls for appropriate pricing of risks.”