Nigeria’s insurance industry has over the years failed to get the buy-in of most Nigerians due to what many say is their inability to pay claims as and when due; BENJAMIN UMUTEME reports.
A lot of Nigerians would readily say that the country’s insurance industry is a no- go area for them due to their past experiences or stories. And this is why many restrict themselves to just motor insurance popularly known as third party insurance. Even at that, many still don’t do anything other than pay their motor insurance in order to escape the troubles of the police, Vehicle Inspection Officers (VIO) or officials of the Federal Roads Safety Corps (FRSC).
For those who obtaining insurance cover is mandatory due to their work, their experiences have not been palatable. They argue that they have had to abandon their insurance due to the rigours one encounters in order to get their claims paid.
Changing the narrative
All that used to be in the past as things are changing for the better. The Nigerian Insurance industry despite its relative size has proven to be one of the most resilient and fastest growing sectors in the Nigerian economy.
In the recent past, especially in the last five years, it has defied several economic recessions and the effects of the global Covid-19 pandemic, at a period when other sectors of the economy pointed south.
The market as measured by the industry gross premium income (GPI) has maintained a steady growth since 2017 till date.
A review of data from the sector’s regulator, the National Insurance Commission (NAICOM) revealed that the insurance industry recorded significant growth of 65.6 per cent for the period when it grew from about N372.4 billion in 2017 to N616.6 billion in 2021, Year-on-Year.
In 2017, the rate of growth was 14.2 per cent, in 2018, it slightly rose to 14.5 per cent, before it moved to 19.2 per cent, 1.2 per cent and 19.7 per cent for 2019, 2020 and 2021, respectively.
The industry’s remarkable experience is even better situated when pictured relative to other jurisdictions in similar and/or emerging insurance markets.
Retention capacity
The sector has proven to be resilient not only with regards to premium generation but the capacity to retain businesses which signifies sound financial stability and carriage capacity. In tandem with the GPI growth, it recorded a positive trajectory in business retention from N265.5 billion to N441.2 billion (66.2%) between 2017 and 2021.
The retention growth was highest for the Marine & Aviation, growing at 169.7% over the period while General Accident Insurance retention lagged at about 24.6% over the same period which signifies the growing retention capacity by Insurers as the aggregate five year retention ratio of the industry stood at 72.1 per cent as the portfolios of Motor (93.1%) and Life business (91.8%) led the market.
According to Umaru Baba of the Statistics Department of NAICOM, even in 2020, when business activities almost ground to a halt the industry recorded a retention ratio of about 71.6 per cent, higher than the advanced climes of Australia (69.4%) and Turkey (70.9%) and indeed the developing market of Egypt (58.1%) among others. Even in 2022, retention experience in the first half was no different from previous years.
He said: “The Life business retention was 93% while non-life recorded a ratio of 55% as the industry average stood at about seventy-one (70.5%) per cent.
“All Nonlife classes stood at an above average position except for the Oil & Gas (40.1%) even as it declined further compared to its retention capacity in the corresponding period (42.3%) of 2021.”
Claims settlements
This is one area that many say the sector needs to vastly improve upon. However, a look at data from the industry indicates a contrast with the narrative that seems to go out.
Claims is a primary factor for the quest of Insurance business and a cardinal element in its business model. Normally, policyholders go for these services with the intent of filing for claims if/when the risk crystallises.
Industry figures revealed that gross claims reported a fluctuation over the period to peak at a growth proportion of 36.2 per cent over the years from N186.4 billion in 2017 to N336.8b in 2021.
Also, the percentage net claims paid has, owing to Improved market discipline and the approach of customer focused regulation, remained very high around in the border of 70 per cent.
The Insurance market has continued to grow in gross claims reported reflective of the increasing policyholder enlightenment, market confidence from both demand and supply sides, and indeed effects of regulatory measures meant to ensure claims settlement.
In 2019, however, while the gross claims reported declined by about 11 per cent, the ratio of net claims paid stood at 69.3 per cent. In all other years except 2017 (67%) it was at least around the border of 70 per cent with the highest recorded at about 84 per cent in the H1 period of 2022.
In the pandemic year, despite macroeconomic challenges, about 70 per cent of all reported claims were settled by Insurers within the specified period; the industry also remained profitable with loss ratios within the average range numbers, with highest in 2018 at 59.2 per cent.
Lower net claims ratios, ceteris paribus, are good indicators of the desirable situation for profitability and good returns on investment in Insurance business.
Restoring confidence
One thing is obvious for the industry to take pride of place in the economy, there is a need to change the narrative.
Many believe that the inability of the industry to blow its trumpet is crucial if the narrative is to change. It is obvious that the insurance sector is the future redeemer of the Nigerian economy given its growth rate, pattern, resilience and yet untapped potential.
Available Data has shown that the industry sustained a higher growth rate than most other sectors of the economy and, always higher than the real GDP growth.
For the managing director of SD&D Management Limited, Gabriel Idakolo, making claims payment seamless would go a long way in restoring confidence in the sector and boosting its growth.
“The major setback to the progress of insurance in Nigeria has been the ambiguity in claims payment unlike in other climes. In South Africa and USA, for example, the insurance industry is way bigger than the banking sector because of the confidence that claims payment will be prompt.
“If insurance companies in Nigeria can pay claims promptly without unnecessary clauses instituted in their insurance policy then Nigerians will embrace them and it will lead to tremendous growth in the sector,” he said.
To restore confidence in the sector, a political economist, Adefolarin Olamilekan, said industry players must do everything within the books to have Nigerians buy in.
For Olamilekan, one of the ways is through prompt payment of claims as this would go a long way.
“More so, this in particular would build citizens’ confidence to buy in into insurance products and other laudable services. Again, it will further open the industry to more acceptance and access through evidence of customers receiving their claim’s and others.
“Furthermore, prompt payment of claims is to the best interest of both the insurance companies and people. Reason being that, the action of the insurance company would widen their custom base,” he said.
