Experts charge operators to shore up capital base for bigger deals
With the cancellation of the Tier Based Minimum Solvency Capital (TBMSC) framework by the National Insurance Commission(NAICOM) late in 2018, the capital base of the industry remains the same.
This means that Non-Life Insurance companies would continue to operate with a minimum of N3 billion capitalisation; Life Insurance Operators, N2billion; and Composite Insurers, N5billion minimum capital base, in 2019.
If the recapitalisation exercise had gone through, market analysts, who spoke at a workshop in Lagos, said it would have increased the capitalisation of insurance industry by at least 300 per cent, which would have allowed insurers in the country to retain some of the huge insurance businesses being taken offshore.
But calling on his colleagues in the business of insurance to shore up capital base this year irrespective of the cancellation of the policy, the President, Chartered Insurance Institute of Nigeria (CIIN), Eddie Efekoha, said most insurance companies will lose businesses they used to underwrite as policyholders seem poised to transfer their risks to underwriting companies with strong capital base.
Efekoha, who is also the Managing Director/Chief Executive Officer of Consolidated Hallmark Insurance Plc, stated that there is a particular transaction in Exxon Mobil for several years that never respected the N3 billion capitalisation, adding that operators within the extant capital base were excluded from the business.
He noted that recently, he was told of a broker, who said his client had informed him not to place risks with any underwriting firm with less than N9 billion as proposed in the cancelled TBMSC policy.
Efekoha posited that with such developments, it is now immaterial whether the industry regulator withdraws the TBMSC policy, adding that the policy has opened the eyes of insurance consumers.
He said: “What I heard from our office recently was that there is a broker that said that my client has already seen that N9 billion is what is required, so please go and shore up. It is immaterial whether the commission has withdrawn from the TBMSC or not. Of course, we are all here in this market, there is a particular transaction in Exxon Mobil for several years that never respected the N3 billion capitalization and to that extent, some of us whose capital were not up to that minimum were excluded.”
Rate-cutting is expected to continue in Insurance Industry in 2019 as insurers scramble for businesses, especially, in the formal sector base.
A development that is hurting insurance industry in terms of premium income, experts said, risk-cutting is a regrettable act that must be addressed to increase insurance contribution to the nation’s Gross Domestic Product (GDP).
According to the Deputy Commissioner for Insurance, Mr. Sunday Thomas,
“There was a point in this market when 10 per cent for comprehensive insurance was sacrosanct, but later, it came down to five per cent and that became the standard. But you and I also know that there was a point that some operators were charging as low as one per cent
“Also, there was a point that 3rd party was N5, 000. You and I know that it came to a point where people were charging N1,000 and the market was producing N200 million premium income from this business. If they decide to charge N5000, what is the market likely to produce?”
This challenge, he said, must be addressed by insurers to increase the stake of the industry to pay genuine claims as and when due, noting that, when a risk underpriced, it affects the ability to promptly pay claims.
The Managing Director, NSIA Insurance Limited, Mrs. Ebelechukwu Nwachukwu, said, insurance in 2018, has grown significantly in terms of the quality of products insurers rolled out.