The value of assets under insurance cover is beginning to decline due to the recent depreciation of the Naira on the foreign exchange market as well as the rising rate of inflation.
Wakadaily learnt that more risk are now under insured as value of claims are getting lower than the assets the were supposed to cover.
Insurance companies are now off-loading their underwriting businesses to ceding arrangements with both domestic and foreign re-insurers, while also incurring higher reinsurance expenses especially on overseas ceding due to depreciation of Naira.
Also, findings from the full year report of 17 leading insurance companies released on the Nigerians Exchange Limited show that while Gross premium written,GPW,for full year 2023 increase by 25.9 per cent to N557.5 billion from N442.6 billion recorded in 2022,their reinsurance expensive went up by 28.4per cent to N133.01 billion from N103.6 billion.
Operators’ insight Speaking on the development, Managing Director of Universal Insurance Plc, Mr. Ben Ujoatuonu, stated that the inflation is wiping away people’s incomes and it having a tariff on insurance. He said: “Businesses thrive when the economy thrive and the insurance is not uncommon .So with look of things going in economy, the increase has taken disposable income and insurance is product you buy when you have enough expendable income.
“Everybody, both the insurers and the insured are suffering the same situation.for the insurers, it means that any point in time, the premium you collected today may not be enough in the next two month because the value of the insured asset has gone higher.The constant devaluation of the naira affecting our business in the sense that we are operating in a naira economy your ability has to be measured against the dollars in the terms of what you have”.
“For instance, if when the rate was N300 to a dollar you have shareholders fund of N30 billion, you can take a risk of 10 million dollars in terms of capacity. But now with the same N30 billion, when you take it in exchange for what you have in dollars, you see that you may not take a risk of three million dollars. “So what it has done is that it has reduced your capacity in terms of attracting risks.”
This is driving capital flight in the industry because once you get the business,you will want to off-load reinsurance because the valuation in naira has affect the ability to pay risks within the economy,which is the major thing it has done”Ujoatuonu also stated that the sustained increase uptrend is having a bad impact on claim payment.He stated “In terms of claim settlement, increase is also eating up a lot of things.
“When it comes to partial losses will come to a point where there will be more constructive total loss, because by the time you bring the cost of repairing your damaged vehicle, it will be almost the same as the cost of new purchase. What will happen is that the insurer will take it as constructive total loss and if he does that and pays you that sum insured, he cannot buy another vehicle for you. “It has a very strong negative impact on everybody both the insured and the insurer.”
Ujoatuonu, however noted that this is the best time to buy insurance, saying: “so in drawing your priority list, insurance should be part of it because those assets you cherish, once they are damaged, you cannot replace them if you don’t have insurance. So this is the best time to buy insurance despite the economic situation in the country.”
