For the regulator, the apparent reason for adjustment in rates stems from the fact that the last review on third party motor insurance occurred 19 years ago, even though the number of claims often settled for third party cases is not often times discussed. To the motorists, the 200 per cent increase is not justifiable considering the state of the economy and inflation. Many motorists also consider third party insurance as a statutory responsibility that offers no corresponding value. Addressing the issue of trust deficit in the Nigerian insurance industry remains a concern that will linger if nothing is done to change the fortunes of the industry.
According to the Federal Roads Safety Corps (FRSC) Act, any automobile on Nigerian roads must have at least third-party motor insurance policy or comprehensive insurance coverage, which goes for between five and 10 per cent of the value of a vehicle. The Nigerian Insurance Act also requires drivers to have at least third-party insurance, so buying this policy is not optional. Third-party insurance only covers a vehicle owner against third-party damages and losses, as it is the most basic form of auto insurance.
At the beginning of this year, motorists were mandated to pay N15,000 as the new premium for third party insurance. For commercial vehicles, the new rule states that they will have to pay N20,000 as the going rate. Before now, Third Party Vehicle Insurance came at a fixed price of N5,000 for privately used saloons and SUVs, while commercially used vehicles were charged N7,500. The new rates amount to about 200 per cent increase from N5,000 that was earlier being charged. Though mixed reactions trail the decision by National Insurance Commission (NAICOM), there are concerns about compliance and if issues of fake insurance documents will not become the norm again.
Available data from the Nigerian Insurers Association (NIA) confirmed that only about three million vehicles out of 13 million on Nigerian roads are insured, indicating that about 77 per cent are uninsured. The NIA also lamented that the sector can generate over N50 billion in premium income yearly if all vehicles have genuine insurance.
The Guardian had exclusively reported moves by the insurance industry in 2022 to review the third-party motor insurance rate, following an uptick in inflation and an increase in the rate of asset replacement or repair, thus, putting the insurance firms at a loss anytime major claims come from any class of motor insurance.
While the implementation of the new rate is good news for the insurance sector, market observers said the rate increment could make road users abandon genuine policy for fake insurance papers. With a spike in inflation, the cost of vehicle maintenance, either at the services/lubricants centre or at the mechanic’s workshop, has become unbearable to many road users, as more unfit vehicles ply the roads.
The National Insurance Commission (NAICOM) had in 2004, approved the move by operators across the country to raise insurance premiums for third party motor insurance. The rate was raised to N5,000, up from N1,000, in a 400 per cent increase at the time. Interestingly, the country’s inflation rate at the time was 15 per cent. 19 years after, the inflation rate as of December 2022 stood at 21.34 per cent. The country’s weakened currency has also made it more expensive to import vehicles and spare parts.
Going by other African countries’ premium rates on third party motor insurance for private cars, Kenya pays Ksh 7,574 ($66.69), Ghana pays 327 Cedis ($52.16), while Zimbabwe pays ZWL 3123.90. Nigeria, until the recent adjustment, pays about $12 (at $1:N411). Unlike other countries, market penetration equally remains very low in Nigeria.
The typical Nigerian buys third party auto insurance simply because they are required to buy it. The third-party insurance is supposed to cover the cost of repairs when a motorist damages someone’s car or property. However, most people usually do not make claims when involved in accidents. They end up paying for the damage, meaning that Nigerian drivers are not getting value for their third-party insurance. By not using it, they are giving free money to the insurance companies. This leaves Nigerian drivers feeling exasperated, and seemingly having no one to turn to. While this is not supposed to be the norm, it is noteworthy that the process for making claims is often times cumbersome and discouraging to many motorists who are most times impatient.
By simplifying the process of filing for insurance claims, the insurance industry can encourage policy holders and increase market penetration, rather than relying mostly on regulations to improve growth of the sector. While the price increment by NAICOM without recourse to the yearnings of the people has been critiqued as insensitive, it is however rewarding to see the regulator up the compensation limits on the revised policies. To many people, an increase in the value of the policies is seen as an indirect tax on the abiding citizens rather than creating an efficient system that ensures that more people are brought into the tax net.
With the exception of Lagos State where a system has been created to track vehicle papers that are not up-to-date and other traffic offences, many other states do not have a mechanism to ensure that the remaining 77 per cent of vehicles on the roads have complete and genuine documents. Creating an efficient system nationwide remains a viable mechanism to avert revenue leakages and a just system. There should be sanctions for violators in order to encourage more people to adhere to the rule of law. There is also a need for increased sensitisation, even as the civil society organisations and lawyers have their jobs cut out for them in holding government and relevant agencies to account for bad roads and poor services, despite higher taxes. Nigerians deserve more from a government and regulatory agencies that only seek to demand more. Insurance is good but getting value for services procured will lead to repeat purchases and a thriving industry.
