Regulators across Africa toughen up on motor markets

Regulators across Africa toughen up on motor markets

In what looks like a co-ordinated approach to motor insurance, insurance regulators across the continent have toughened up their rules on motor insurance in a bid to make the sector sustainable.

Some markets are heavily dependent on the motor book for their business, however, in recent years cut-throat competition has driven profitability down as losses continue to mount. There has also been concern that the cost of claims will rise rapidly as parts and labour become more expensive, particularly parts that have to be imported.

However, it does depend on the market as to whether or not market players will welcome the increase in tariffs or changes to the rules.

In Ghana, the insurance regulator, the National Insurance Commission (NIC), has implemented motor third-party liability insurance tariff hikes of around 43%, which all insurers are mandated to apply – the rule came into force on 1 January 2023.

Last year the regulator Justice Ofori spoke at a conference held by Continental Re on the need to ensure that consumers were protected against failed insurers.

He told the delegates the risk remained that with rates so low, insurers could face too many claims and subsequently fail to pay out on claims and, at worst, become insolvent.

However, insurers in the room felt that tariffs were too harsh an instrument, arguing that market forces should be allowed to dictate rates and capitalisation requirements would protect consumers.

Heated debate followed but clearly Mr Ofori has decided rates must rise.

He told Africa Ahead “the increase in the third party motor insurance tariffs was necessitated by factors including the high cost of spare parts and the rising number of third party motor insurance claims. Additionally, administrative cost has also gone up astronomically.

“It is instructive to note that the last time tariffs were adjusted was about some 15 years ago while the prices of parts and services keep rising year-on-year. This is in spite of the fact that third party premiums remained unchanged over the period.”

The regulator added “It is important to note that the tariff adjustment which took effect from January 2023 applies to only third party motor insurance covers.”

Meanwhile, in Algeria, the Insurance Supervisory Commission (ISC) of the Finance Ministry has urged motor insurers, several of whom have violated a multilateral memorandum of understanding (MoU) on motor insurance pricing, to follow the rules.

Motor insurance accounts for 43% of insurers’ activity in 2021, with a turnover of DZD62.1bn ($455m), down 2% compared to 2020’s DZD63.2bn.

The ISC has ordered insurance companies to implement the provisions of the multilateral protocol, which was signed by all insurers.  Commission president Abdelkrim Bouzred sent a note to the local insurance association which in turn sent a note to insurance companies.

The directive, “Excesses of the multi-protocol agreement on motor insurance”, reads: “The authority has been informed of violations in the application of the multilateral protocol in the field of auto insurance.”

The MoU was signed by all motor insurers in 2017, approved by the insurance regulator and entered into force in January 2021, regulating the discounts (capped at 50%) granted by insurance companies to customers on motor insurance premiums.

To enforce the MoU, the ISC directed the Association to reactivate the vigilance committee to monitor cases of non-compliance. The committee is to hold periodic meetings to determine the extent of insurance companies’ commitment to observing the protocol.

Finally, in Nigeria, Prince Cookey reports the National Insurance Commission (NAICOM) in Nigeria recently raised the third-party property damage (TPPD) rate and premium on private cars to N3m and N15,000 respectively, effective from January 1 2023, from the existing premium of N5,000.

In a circular (NAICOM/DPR/CIR/46/2022) dated December 22 2022 and signed by LM Akah, the director, policy and regulations at NAICOM, the Commission said:

  • Pursuant to the exercise of its function of approving rates of insurance premium under Section 7 of NAICOM Act 1997 and other extant laws, the Commission hereby issues this circular on the new motor insurance premium rates effective from January 1 2023.
  • Third Party Insurance policies inclusive of ECOWAS Brown Card (EBC).
  • Comprehensive motor insurance policy premium rate shall not be less than 5% of the sum insured after all rebates/discounts.
  • Failure to comply with this circular shall attract appropriate regulatory sanction.

The new insurance premium rates also include claim of N3m and premium of N20,000 for Staff Bus; claim of N2m and premium of N5,000 for tricycles and claim of N1m and premium of N3,000 for motorcycles.

As expected, both operators and policyholders are reacting cautiously to the new rates given that an estimated 3.4-million vehicles in Nigeria out of over 13-million lack genuine third-party motor insurance policies as at the second quarter of 2022 due to the activities of fake insurance operators. The situation amounts to annual loss of over N160bn to the local insurance sector.

A similar study by the Nigerian Insurance Industry Database (NIID) also implied that while 9.4-million vehicles are on Nigerian roads, only 2.74-million of them have genuine insurance policies. The NIID platform was established by the Nigerian Insurers Association (NIA) to verify the genuineness of insurance certificates.

Kenya’s general insurers cut underwriting losses by 45% in the nine months ending September 2022 as the performance of motor insurance improved, with improved motor losses being attributed for the gains.

Industry data from the Insurance Regulatory Authority (IRA) showed the general insurers’ underwriting losses dropped to KES2.26bn at the end of September 2022 from KES4.13bn in the previous similar period.

The latest underwriting performance is the best nine-month performance in five years as the sector saw losses in motor insurance eased. The general insurers last posted a full year underwriting profit in 2017 when they closed with KES556m.

Workmen’s compensation class made the highest underwriting profit of KES2.48bn, further supporting the improved underwriting results.

Gross premium income for general insurers increased by 10.7% to KES134.41bn, with fire industrial posting the fastest jump (30.9%) among the major classes of insurance.

“Medical and motor insurance classes maintained a leading position in terms of contribution in general insurance business premium at 32.8% and 29.4% respectively,” said the IRA.

The underwriters saw losses in the motor private class drop by 40% percent to KES2.89bn in the nine months to September 2022 from KES4.83bn in the preceding similar period.

Losses in motor commercial also receded by 29% from KES2.48bn to KES1.75bn, helping the underwriters to post improved results.

Claims paid under motor private rose by 4.3% to KES12.12m as those under motor commercial increased by 11.6% to KES11.4m.

The reduced losses in motor insurance coincided with the period many underwriters in Kenya started pushing for increased premiums and also dropping various models of cars from their insurance.

GA Insurance, for instance, stopped offering comprehensive cover insuring several Toyota car models including Probox, Succeed, Passo, Porte and all Suzuki models valued below KES1m. Another insurer, APA Insurance, stopped insuring 28 models of Toyota, Honda, Maruti, Mazda, Nissan and Suzuki.

The insurer said it had looked at loss trends and cut out cars which have commonly been used for roles different from those disclosed to insurers.

Motor and medical classes of insurance usually account for most of the premiums for general insurers in Kenya and ultimately have a bigger say on the direction of underwriting results.

The general reinsurers also posted improved performance during the review period, with their net premium income rising by 27% from KES17.69bn to KES22.46bn as at the third quarter of 2022.

The operating profit for general reinsurance business increased by 78.9% from KES1.97bn as at the third quarter of 2021 to KES3.52bn at the end of a similar period in 2022.

The rise in operating profit was majorly contributed by Kenya Reinsurance Corporation, whose operating profit increased from KES951.47m to KES2.28bn.

Kenya’s insurers are now joining others globally in implementing the new accounting standard, IFRS 17, that is expected to impact the way numbers are reported. This kicked off on January 1 2023.

The new standard will require underwriters to take a different approach to measuring and reporting insurance and reinsurance assets and liabilities using more granular data, assumptions and models, according to PwC analysis.

“The new standard will impact many departments and functions across organisations including product design, pricing, actuary and finance,” said the PwC in the analysis authored by Anthony Murage and Akinyemi Awodumila, a partner and associate director respectively.