Regulators toughen approach across Africa to shore up motor insurance markets

Regulators toughen approach across Africa to shore up motor insurance 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.

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.

Adewale Oyerinde, director-general of the Nigeria Employers’ Consultative Association (NECA), told the News Agency of Nigeria (NAN) that it was right to introduce the new motor insurance rates to drive growth of the insurance sector and the larger economy in Nigeria.

Mr Oyerinde said: “It is worthy of note that the current rate has been in existence for more than five years, while the cost of motor vehicles has increased exponentially.

“Coupled with the general price increase of goods and services, the Commission can be justified if there are guarantees for improved service delivery and a higher response rate from insurance companies.”

But an industry operator cautioned that the timing of the increase could create financial handicap for owners of vehicles given the rising level of inflation and general economic downturn in the country.

The operator said: “Of course, the motor insurance new rate is good news for operators to generate more revenue, but the downside is that many vehicle owners who cannot readily afford the new rate of N15,000 will now justifiably patronise roadside fake insurance agents promising them the old rate of N5,000. More importantly, in a country where enforcement is a major challenge, who will enforce the new rate? The regulator should have raised the rate to N10,000 instead of N15,000 to make it easier for vehicle owners to pay.”

With the new motor insurance rates in place, the coming months will determine the fate of the new policy by NAICOM in terms of implementation, enforcement and compliance.

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