The recent sharp depreciation of the Naira in the foreign exchange market as well as the rising inflation rate has started eroding the value of assets under insurance cover.
Findings from the recent developments in the industry have indicated that most risks are now under-insured as value of claims are getting lower than the assets they were supposed to cover.
Consequently, as claims continue to crystalise in the sector, insurance consumers are being paid claims far lower than the value of the asset insured.
Also, insurance firms are now off-loading their underwriting businesses to ceding arrangements with both local and foreign re-insurers, while also incurring higher reinsurance expenses especially on overseas ceding due to weaker Naira.
The development is expected to erode profitability in the sector despite improved gross premium income, while undermining their capacity to retain huge risks.
The industry operators told Financial Vanguard that the rise in reinsurance expenses is fueling capital flight menace that has plagued Nigeria’s insurance sector over the years due to their inability to retain huge businesses in-country.
Consequently, findings from the full-year report of 17 leading insurance companies released on the Nigerian Exchange Limited show that while Gross Premium Written, GPW, for full year 2023 increased by 25.9 per cent to N557.5 billion from N442.6 billion recorded in 2022, their reinsurance expenses went up by 28.4 per cent to N133.01 billion from N103.6 billion.
The companies are Aiico Insurance, Axa Mansard, Consolidated Hallmark, Cornerstone Insurance, Coronation, Custodian Investment, Guinea Insurance, Lasaco Assurance, Linkage Assurance, Mutual Benefits, Nem Insurance, Prestige Assurance, Regency Alliance, Sovereign Trust, Sunu Assurance, Universal Insurance, as well as Veritas Kapital Assurance. Meanwhile, insurance experts have cautioned that insurance consumers should insure their assets as well as renew based on the prevailing value to get full coverage and adequate compensation when the risk crystalises.
This indicates that in 2024, insurance premium is expected to rise significantly against the rate in 2023 for the same class of assets. However, the prospect of the insurance industry growing with a higher premium appears remote as operators fear consumer resistance amid erosion of disposable income across the segments of the society by harsh economic condition in Nigeria today. Operators’ insight Speaking on the development, Managing Director of Universal Insurance Plc, Mr. Ben Ujoatuonu, said that inflation is wiping away peoples disposable income and it is having a toll on insurance.
He stated: “Businesses thrive when the economy thrives and insurance is not an exception. So with what is happening in the economy today, the inflation has taken away people’s disposable income and insurance is product you buy when you have enough disposable income.