Insurers express concerns about rising operating costs

Chief executive officers of insurance companies have expressed concern about the rising cost of operations, including the surging price of diesel, saying it negates operational efficiency.

The insurance chiefs, who spoke to The Guardian at the weekend, said inflation has pushed up the cost of asset replacement as many of the auto parts have doubled in the past year, increasing the cost of claims in the event of damages or total loss of insured vehicles.

According to them, premium revenues are going down as Nigerians focus on meeting basic needs like food, shelter, health and security while cutting the budget for insurance.

Motor insurance is the second-largest source of premium for the general business segment of the insurance industry in Nigeria, coming behind oil and gas risks.

Gross premium income (GPI) for the industry increased by 22.6 per cent to N630.4 billion in 2021 from N514 billion recorded in 2020.

The National Insurance Commission, NAICOM also confirmed that the industry paid net claims of N238.1 billion in 2021 while total assets stood at N2.1 trillion.

Managing Director/Chief Executive Officer of Tangerine Insurance, Mayowa Adeduro, who also reacted to the negative impact of inflation on businesses, said underwriters are at the receiving end of the challenge.

“For underwriters, inflation is a destroyer of value. To the asset owners, insurance is a cost after other costs like food, shelter, school fees and security. Most asset owners will consider upward revaluation of assets as the last thing to do if they still have disposable income left after meeting basic and other needs,” he said.

According to him, in the event of partial loss of assets like a motor vehicle where the insured insists on replacement value, it is usually the amount plus inflation.

“The insurance company is disadvantaged in this instance since it cannot apply the condition of average on part replacement. However, if the claim is a total loss or what we call constructive total loss, the insured will be at the receiving end since he cannot claim more than the value insured, except the insured has revalued the asset before the loss,” he added.

According to Adeduro, another challenge is that during the period of high inflation, rates go down to encourage people to renew their policies instead of dropping insurance altogether to meet other needs.

He said life insurance also suffers significant diminishing value over time, while surrender of policies becomes rampant.

“The elasticity of demand for insurance is highly price-sensitive. Demand drops significantly for the slightest upward adjustment of price to respond to inflation. That is the reason underwriters will rather encourage asset owners to revalue assets rather than adjust rates,” he said.

The Chairman of NIA, Ganiu Musa, said the insurance industry has so far paid over N11 billion claims to the insured that suffered losses from the #EndSARS riots in 2020 till date.

Musa noted that the industry claims payment to #EndSARS might get to the tune of N20 billion.

According to the NIA report, insurance companies settled claims on 718 cases of vandalisation, 93 cases of looting, 113 cases of theft and 136 cases of loss of cash. Also, 99 claims on malicious damage, eight on business interruptions, 455 on burglary attacks and 912 on fire were settled.