Insurers’ Claims Expenses hit N155.58 bn as COVID-19 Threat Looms

Insurers in Africa’s largest economy are expending more on claims to generate premium income, as business interruption caused by the coronavirus pandemic exposes the industry to mounting obligations.
Foreign exchange volatility, high unemployment rate, and fraudulent demand for claims by some customers have always been a burden on the industry, and a drop in volume of activities due to recent global macroeconomic instability could be the last straw to push companies over the edge.
Total claims expenses paid by insurers rose by 18.42 percent to N155.58 billion as at December 2019, from N131.38 billion the previous year.
Also, average industry loss ratio declined to 44.86 percent in December 2019 from 49.22 percent the previous year, which is why insurers have been struggling with huge underwriting loss as combined ratio are over 100 percent.
Interestingly, the combined claims expenses of N155.58 billion is 50.45 percent of net premium income figure of N301.12 billion, as weak investment returns contribute to deteriorating profit margins.
Experts say the move to take up some particular business contrary to actuarial advice is responsible for the situation. They added that inadequate pricing of risks has been part of the problem.
Many operators in the industry charge lower premium even as they have bad risk, and the mismatch has been blamed on the National Insurance Commission (NAICOM).
Custodian and Allied Investment’s claims expenses increased by 84.05 percent to N28.11 billion in December 2019 as against N15.27 billion as at December 2018. Loss ratio moved to 100.03 percent in December 2019 from 74.25 percent as at December 2018.
Leadway Assurance Plc, the largest insurer by total asset, profit, and shareholders’ fund, saw claims expense increase by 11.49 percent to N38.46 billion in December 2019 from N34.41 billion as at December 2018. Loss ratio increased to 54.23 percent in the period under review from 48.13 percent the previous year.
NEM Insurance’s claims expenses spiked by 62.21 percent to N4.14 billion as at December 2019 as against N2.55 billion as at December 2018. Loss ratio moved to 30.69 percent in the period under review as against 23.88 percent the previous year.
Axa Mansard’s claims increased by 13.06 percent to N14.82 billion in December 2019 from N13.11 billion as at December 2018.
Experts have warned that the insurers could be exposed to business interruption claims due to Covi9-19 shocks.
The lockdown imposed by government in order to curb the spread of the insidious disease resulted in event cancellations, and what that means is that companies will have to bear the brunt of the uncertainties.
“Other large-scale events are being contained to hold within closed doors or locally and all of these translate to loss in travel insurance revenue for the insurers,” said Owolabi Salami, Executive Director, Allianz Nigeria Insurance Plc.
Global accounting body PriceWaterCoopers (PWC) has warned that there could be possibility of regulators asking for extraordinary solvency tests to ensure Nigerian insurers can withstand the immediate and knock-on impacts from the coronavirus pandemic.
The global accounting firm said in its latest report “Covid-19 and the Nigeria Insurance Industry” that with most businesses in uncharted territories, there is a heightened risk of a surge in health, travel and business interruptions, supply chain and event cancellation claims.