Insurance claims rise faster than premium income

Operators point to reckless competition

By Rosemary Onuoha

THERE are indications that insurance companies are groaning under the weight of a surging claims portfolio as more risks crystallize, despite efforts to stem the tide.

The latest financial reports of leading insurers show an escalation of claims volume, rising faster and overshadowing the growth recorded in premium income.

The industry’s total Gross Premium Written, GPW, grew by 12.4 percent to N226.8 billion against N201.7 billion recorded in 2017.

But the total claims expenses on the other hand went up by 16.5 percent to N98.9 billion from N84.9 billion recorded in 2017.

File: insurance

The same trend was recorded in the previous year when GPW grew by 9.7 percent while claims expenses went up by 30.3 percent.

Industry operators have expressed worry that the trend would pose threat to the industry’s survival in the medium term if not checked.

According to some stakeholders, the greed to take up some particular businesses, contrary to actuarial advise, contributed to the situation.

Consequently, some operators have resolved to avoid risks that the actuarial reports may have flagged.

Others, on the other hand have said that they can only take up such risk if the price is right because inadequate pricing have been part of the problem generated by competition for customer acquisitions.

According to the Managing Director of Consolidated Hallmark Insurance Plc, Mr. Eddie Efekoha, “The industry paid a very huge claim for a particular business in the course of the year. Clearly, if the premium for that business is inadequate, in the next thirty years the claim cannot be paid.”

Companies’ performance

A breakdown of individual company performance shows that Prestige Assurance had it tough in terms of claims payment where GPW grew by 26.3 percent to N4.8 billion from N3.8 billion, while claims expenses went up by a whopping 83 percent to N1.2 billion from N655.7 million.

Sovereign Trust grew its GPW by 23.5 percent to N10.5 billion against N8.5 billion, but its claims expenses went up by 46.2 percent to N1.9 billion from N1.3 billion.

Consolidated Hallmark Insurance had GPW increased by 21.1 percent to N6.9 billion from N5.7 billion, while claims expenses climbed by 28.6 percent to N1.8 billion from N1.4 billion.

Leadway Assurance grew its GPW by 3.9 percent to N87.5 billion from N84.2 billion, while claims expenses escalated by 23.7 percent to N33.9 billion from N27.4 billion.

Regency Alliance GPW went up by 3.6 percent to N5.8 billion from N5.6 billion, while claims expenses increased by 10.5 percent to N2.1 billion against N1.9 billion.

However, some companies recorded a positive balancing of the claims with the premium.

AIICO Insurance GPW went up by 17.4 percent to N37.7 billion from N32.1 billion, while claims expenses rose by 14.9 percent to N23.9 billion against N20.8.

Custodian and Allied Insurance GPW climbed by 15 percent to N36.7 billion from N31.9 billion, while claims expenses went up by 10.1  percent to N15.3 billion against N13.9 billion.

AXA Mansard GPW increased by 26.5 percent to N33.9 billion from N26.8 billion, while claims expenses went up by just 4.4 percent to N16.5 billion from N15.8 billion.

Operators’ perspective

Although some insurers recorded modest growth on the GPW, some operators believe it could have been better if not for huge claims settlement.

Efekoha said, “We grew our premium modestly and we were profitable which were enhanced by some tax savings that we had. Insurance should be looking up in some respect.”

Managing directors of the companies that had adverse claims portfolio preferring to speak on the condition of anonymity said that under-pricing of risks have been the undoing of many insurance operators and the slow growth in premium income.

He stated: “Many insurers have undone and keep shooting themselves on the foot by under-pricing the risk they carry, which they are still doing.

“Some companies recently went to the capital market to raise funds. So after struggling to raise funds, they will then give it to some companies that are richer than them in the name of settlement of claims, without any ‘thank you.’

THERE is apprehension among insurance practitioners over the reluctance of the Lagos State government to renew its insurance coverage for the 2017/2018 business year.

“For me, I don’t know the broker who will change our mindset here. I cannot enrich someone who is already the richest man in Nigeria or Africa because I sweated for this money.

“If everybody will price a product wrongly, I will not. I believe in underwriting which teaches that when you have a good risk, you lower your premium, when you have a bad risk, you increase your premium. But what I see today is completely different. Unfortunately, after under-pricing a risk and paying huge claims, during renewal, a lower premium is charged.

“In insurance, if a risk becomes certain, you remove it, you don’t cover it.  It is uncertainty that the insurance industry is made to cover, it is not made for certainty. Unfortunately, by our action and inaction, we have contributed to the poor state of the sector.”

Speaking on the issue, former President of the Nigerian Council of Registered Insurance Brokers, Mrs. Laide Osijo, said that the concentration on corporate business to the detriment of the retail market has contributed to the marginal growth in GPW over the years.

She stated: “We have done the corporate businesses to their limits, unfortunately the corporate businesses can no longer increase in terms of insurance budget and that is why the premium income for the industry is not growing astronomically.”

Another top executive of an insurance firm who spoke on the condition of anonymity also attributed the slow growth in premium income to inadequate pricing of risks.

He said, “Inadequate pricing of risks goes on in this industry, unfortunately, when the big claims come, not everybody responds as expected. Why is it so? Because liquidity is not there.

“You have not built enough capacity and the claims keep coming, there will be nothing left afterwards.”

Also speaking on condition of anonymity, an operator blamed the National Insurance Commission, NAICOM, for the under-pricing in the industry saying that it is the duty of the Commission to sanitise the sector.

He said, “I believe that there is enough ammunition in the Insurance Act for the regulator to use to sanction companies. If as a company I can’t settle genuine claims and the regulator finds out that I don’t have capacity, it can stop me from writing those classes of business that will embarrass this market. Anybody who trades with you in that class, I equally prohibit them or sanction them, so that others can learn.

NAICOM has the power to sack the MD and say ‘we no longer recognize you as the CEO’.”