Stories by Rosemary Onuoha
FROM next year, reinsurance companies will no longer accept risks that are priced below the standard threshold of risk pricing by insurance companies.
Vanguard investigations reveal that this move was prompted by sharp increase in industry claims ratio which has continued to outpace premium income, leading to dwindling profits.
Accordingly, the National Insurance Commission, NAICOM, is planning to come up with a framework to ensure that risks are adequately priced to beef up retention capacity in the sector.
Reinsurance is insurance that is purchased by an insurance company from a reinsurer directly or through a broker as a means of risk management. Hence, it is the practice of insurers transferring portions of risk portfolios to other parties by some form of agreement to reduce the likelihood of having to pay a large obligation resulting from an insurance claim.
An operator who confirmed this development to Vanguard on condition of anonymity stated: “If you look at some of the key accounts in the industry, you will find out that the claim ratio is more than 200 percent. Unfortunately, at renewal, the insurers will charge a rate lower than the previous year. Such occurrences have prompted the regulator to take the issue of pricing serious which is one of the things that the regulator will look at next year.”
Another operator who spoke on the condition of anonymity said, “We are going to start charging the right premium rate from next year because one of the things that is affecting us is that we are not charging the right premium rates. Operators have held series of meetings with the regulator as regards that and NAICOM has set a target on premium for the industry going forward.’’
Speaking recently at a media parley in Lagos, the Principal Manager, Non-Life Business at Aiico Insurance, Mr. Akinsola Akinsola said: “The bane of our industry is that we are not charging adequate premium. Rate-cutting is the order of the day due to stiff competition in the industry and this is a major challenge for the industry.
“If Aiico and other players, for instance, refuse to accept any risk, you will still find some other players accepting those risks on very uneconomical terms. Such is the challenge that we are facing in the industry which at the end of the day reduces economic profits for the entire industry.”
Also speaking recently at a forum in Lagos, Chairman of Mutual Benefits Assurance Plc, Dr. Akin Ogunbiyi, said that the unhealthy competition in the industry has robbed the sector of great fortunes, stressing that about 90 per cent of the industry’s supposed revenue are lost to unnecessary discounts and other unfair pricing.
Ogunbiyi said, “There was a business we were underwriting for N1.4 billion in Mutual Benefits, at the last renewal, somebody took that same business for N250 million.”