Nigeria: premium under threat in Q1 as naira and political crises persist

Nigeria: premium under threat in Q1 as naira and political crises persist

The 2023 business year began on a positive for Nigerian insurers when the industry regulator, National Insurance Commission (NAICOM), raised the third-party property damage (TPPD) rate and premium on private cars to N3-million and N15,000 respectively, effective from 1 January 2023 from the existing premium of N5,000.

The new rate policy was conveyed via circular (NAICOM/DPR/CIR/46/2022) dated 22 December 2022 and signed by LM Akah, the director, policy and regulations at NAICOM.

Unfortunately for the market, however, things took a different turn thereafter.

First, the naira redesign policy of the Central Bank of Nigeria (CBN) aimed at expanding cashless transactions and reduce the use of cash created a severe cash crisis, which has persisted to date and has impacted negatively on individuals and businesses in the country.

As the cash situation worsened, making it even difficult for depositors to access cash from their banks, the country witnessed a string of violent attacks on bank buildings and facilities in many cities, creating a new claims headache for insurance firms.

And then came the 25 February 2023 presidential election in which the Independent National Electoral Commission (INEC) declared Bola Ahmed Tinubu of the All Progressives’ Congress (APC) as winner of the presidential poll, prompting court actions by Atiku Abubakar of the Peoples’ Democratic Party (PDP) and Peter Obi of the Labour Party (LP).

The political fight has clearly reopened deep political, religious and ethnic divides in the country, leading to more negative economic indices across various sectors, including insurance.

Responding to evaluation of the insurance market in the first quarter of 2023, Tope Adaramola, executive secretary and CEO of the Nigerian Council of Registered Insurance Brokers (NCRIB), said: “The insurance sector cannot extricate itself from the vagaries of the national economy. The naira redesign crisis affects the insurance industry as well. The situation will likely downgrade the level of premium income in the market in the first quarter as well as have a multiplier effect on the contribution of the sector to the Gross Domestic Product (GDP).”

Mr Adaramola was emphatic that insurers have a duty to settle legitimate claims arising from violent attacks on banks over the cashless policy of the CBN to showcase the industry as responsible corporate citizens and players in the economy. He added that such claims, when paid, could also serve as public relations vehicles by insurers to grow the insurance sector by increasing public confidence and trust on the market.

The claims concern was earlier highlighted by Mayowa Adeduro, managing director and CEO of Tangerine General Insurance: “There is absolutely nothing wrong in redesigning the naira and obviously it shouldn’t have a negative impact on the economy, including the insurance industry. However, the spate of violence and destruction following demonstrations ostensibly from shortage of cash currency and poor services from electronic transfer channels is impacting the insurance industry negatively. We are expecting a spike in claims for riot and civil commotion.”

And for Wale Banmore, managing director/CEO, Staco Insurance Plc, the issue is quite straight forward: “The attacks on the staff and physical destruction of many bank branches nationwide is a ready-made claims waiting to be lodged after the elections.”

On the implementation of the new third-party motor insurance rates in the face of these crises, the NCRIB CEO said: “The situation in the first quarter has made it difficult for the motor insurance new rates to be effective. NAICOM should sharpen its regulatory eyes and know what to do when insurers cheat on the new motor insurance rates.”

The current situation in Nigeria clearly portends reduced premium earnings for local insurers as citizens and businesses battle to stay afloat every day from the twin challenges of lack of cash and uncertain political future.

Meanwhile, NCRIB has said the future target of brokers is to generate as much as 90% of premium income in the Nigerian insurance industry from the current level of 60%, a figure which the Nigerian Insurers Association (NIA) revealed recently.

Mr Adaramola told Business Insurance that, though brokers have been active intermediaries in the insurance value chain through the years, the brokerage fraternity intends to further increase its contribution in terms of revenue generation in the sector to 90%.

Urging individuals and corporates to channel their risk underwriting through registered brokers who would properly advise policyholders on the right cover for their risks, he added that registered brokers are in a better position to interpret the terms and conditions of insurance policies to policyholders to know ahead of time what their insurance policies cover, and likely exemptions.

He promised that brokers will not relent in their efforts to increase its stake in the growth of the industry through its awareness programmes across the six geo-political zones of the country in a bid to enhance insurance penetration, adoption and acceptance in the country.



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