By ZAKA KHALIQ, Lagos
Underwriting firms in the insurance industry are losing a whopping N10 billion annually to cut-throat competition among operators that has led most of them to under-price their third party and comprehensive motor insurance policies, LEADERSHIP can exclusively reveal.
This is aside other policies such as group life, building insurance, among others.
The struggle among operators for the same business lines has lured most insurers into cutting their rates in a bid to woe customers to their respective sides.
LEADERSHIP findings reveal that third party motor insurance policy, whose normal rate is N5,000, is being sold at N3,000 to N3,500 by some over-ambitious insurers, even as it is always difficult for insurers who charge less, to have the financial strength pay claims arising from the policies they wrote. This translates to N1, 500 to N2, 000 loss on each policy sold.
Findings revealed that currently, there are about 4.3 million insured vehicles on Nigerian roads, with insiders’ information revealing that more than 2.5 million vehicles paying less than the normal rates.
Moreover, the rate of comprehensive insurance policy is usually 10 per cent maximum of the cost of a vehicle, but investigation revealed that some insurers even charge as low as five to six per cent, with only few of them, charging the normal rate.
Most of these policies, according to findings, are bought from vehicle liaison offices across the federation at the point of renewing vehicle particulars.
However, the rate-cutting seems not to affect the culprits too much because of the ignorance of most motorists, especially, the commercial bus drivers, to come for claims when the needs arise, preferring to shoulder the financial responsibility than approaching their insurers for repairs or replacement of their vehicles as covered under the policy.
A vehicle owner, Mr. Tunde Kazeem, confided in LEADERSHIP that he bought his third party policy at N3,500 from a top insurance firm, saying, he had never bought a third party for as high as N5,000.
“I bought my 3rd party insurance policy from (name withheld) for N3, 500 and that is what I am still using,” he said.
This development, according to experts, is cutting down on the profitability of the underwriting firms, even as some of the operators are pushing for upward review of rate, especially, on third party motor insurance, saying, the N5,000 prescribed rate does not conform with the present economic realities.
However, the rate-cutting is not restricted to third party and comprehensive motor insurance alone, it cuts across group life, among other insurance policies.
Speaking on this development in an interview with Leadership, the president, Nigerian Council of Registered Insurance Brokers (NCRIB), Mr. Kayode Okunoren, said the industry is shooting itself in the leg by engaging in unhealthy competition that has made most adopt unethical means to sell their products and services. He said rate-cutting will only make things worse for the operators, advising those engaging in such act to desist from it.
He, however, said a joint committee, comprising of the members of NCRIB and NIA, has been set up to determine minimum rates on some of the policies in the industry, thereby, addressing the challenge of rate-cutting in the country.
According to him, “one of the major issues battling insurance industry is unhealthy competition, cut-throat competition, whereby those who don’t have much can do anything and go to any length to get a bigger size of the market share. So, what do they do? The tendency is to undercut and insurance companies will accept because they too don’t want to reduce what they had. So, unhealthy competition between the operators in insurance market is a cause for concern and it unsettles the desired process mechanisms.
“There is a joint committee of NCRIB and NIA to combat this, among other issues. We can’t be competing against ourselves because at the end of the day, we are not contributing enough to the Gross Domestic Product (GDP) as a result of this. You can only contribute effectively when the premium you write and market penetration increase. There has been series of deliberation on this issue of rate-cutting, but now, we must act as one to grow insurance sector of the financial industry.”
Speaking on rate-cutting of third party insurance policy, the Chairman, NIA, Mr. Eddie Efekoha, said, following unhealthy competition in this class of business and the lingering issue of fake Third Party Motor Policies in circulation, the association is, in addition to the deployment of the Nigerian Insurance Industry Database (NIID), considering other measures that will reduce unnecessary competition and inappropriate pricing of Third Party Insurances.
“A Committee is already working out the process and it is expected that the implementation will commence before the 2nd quarter 2017,” he pointed out.