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Wednesday, March 22, 2023

Insurers Brace for Higher Payouts on Naira Devaluation

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Listed insurers are braced for higher payout as the incessant devaluation creates a pricing conundrum for operators who are already struggling with rising combined ratio.

Analysts say a lot of companies failed to match the sum insured with the prevailing exchange rate in the wake of protracted devaluation caused by the vagaries of crude oil price.

The Central Bank of Nigeria had in May devalued the naira as it adopted the NAFEX exchange rate of N410.25 per dollar as its official exchange rate, days after removing the N379/$ rate from its website.

An insurance claim is a formal request by a policyholder to an insurance company for coverage or compensation for a covered loss or policy event.

Policyholders pay insurance companies a sum called premium for indemnifying their losses, and the firms are expected to honour these liabilities as at when due from the premium collected.

When insurers are paying out more in claims than the premium they are collecting, they suffer underwriting losses and profits are clobbered down.

The claims expenses of the largest listed insurers spiked by 34.93 percent to N32.17 billion in March 2021, the fastest expansion in four years, according to data gathered by MoneyCentral.

Further analysis shows there was a reduction in combined obligations by 10.28 percent to N23.84 billion in the 2020 financial year; also, claims expenses were up 16.15 percent to N26.59 billion in 2019.

The average industry claims ratio increased to 21.85 percent in the period under review from 16.80 percent the previous year; that is the fastest expansion in claims ratio in five years.

The claims ratio is the percentage of claims costs incurred in relation to the premiums earned. The claims ratio is equal to the claims rate divided by the risk premium rate.

It is noteworthy repeating that some operators in the industry are struggling to honor obligations because of low capital bases brought on by recurring losses since revenues have been dwindling.

While many analysts had expected that the coronavirus pandemic would lead to acceleration in death rates, Life insurers felt little impact from the pandemic related headwinds.

The industry was exposed to losses brought by disruption to properties during the protest against police brutality, EndSARS.

Insurance companies had paid N4 billion as claims as a result of the EndSAR-related violence, according to the Nigerian Insurance Association (NIA).

  “The number of insured businesses that were affected at the last count was about 2,000 and the industry has settled N4 billion claims out of N4.5 billion in respect of the #EndSARS protests,” said Ganiyu Musa.

“Once they are documented and completed, we have the commitment of our members that the claims will be paid timely,” he said.

AIICO Insurance, the largest insurer by total assets, saw claims expenses increase by 42.20 percent to N10.97 billion in March 2021 from N7.71 billion as at March 2020. Its claims ratio moved to 55.74 percent in the period under review from 43.97 percent as at March 2020.

NEM Insurance Plc claims expenses were up 92.63 percent to N2.55 billion in the period under review from N1.32 billion the previous year. Its loss ratio increased to 25.49 percent in the period under review from 16.74 percent the previous year.

Lasaco Assurance Plc claims expenses surged by 3489 percent to N1.89 billion in March 2021 from N52.83 million the previous year. The insurer’s claims ratio rose to 28.10 percent in March 2021 from 1.32 percent the previous year.

Linkage Assurance Plc claims expenses surged by 150.37 percent to N1.07 billion in March 2021 from N427.36 million as at March 2020. Its claims ratio moved to 26.86 percent in the period under review from 15.01 percent the previous year.

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