The Nigerian Insurance Industry has been experiencing robust levels of development in the last three years.
The growth pattern in the industry in 2012 broadly mirrored the performance of the world economy. Although Africa accounted for just 1.6%of the world insurance premiums, growth was much stronger in 2012 at 10.5%.
Despite this tremendous growth, a lot of Nigerians still have their definitions of insurance different from the true definition. Amongst these definitions are:
“That is what they call glorified gambling”
“Insurance is for the rich”
“Insurance is for heart-weakened”
“That is the definition of corporate thievery” etc.
However, Insurance can be defined as pooling and diversify of risks which are encountered day-to-day by people and businesses so that the consequences of randomly occurring events do not cripple individuals and businesses.
The state of the Nigerian Insurance industry can be traced to the Financial Crisis that occurred in 2008, a lot of investment funds were lost due to the market crunch and the adverse effect the crunch had on the share price of insurance stocks.
Also, unlike the developed markets that have great composite insurance revenue, Nigeria is almost about 80% short-term insurance contract market — Property Insurance, Compulsory Life Insurance, Individual Life and Other Personal Insurances that constitute the basis of the developed worlds market revenue and investment are almost practically non-existent in Nigeria. Long-term insurance contracts, the critical mass individual insurance (microinsurance) are practically just beginning to suffice.
So, unfortunately, the industries that feed the short-term underwriting businesses were affected by the adverse market condition. Naturally, the cash flow and premium payment dropped. The individual insurance that should have made a massive input into financial solvency went missing both from the public and private sectors. A lot of the marginally insured do not pay the premium. That also affected the short-term revenue that should have come into the premium basket.
The recent NAICOM regulations are bringing tremendous changes to the industry with the changes in policy implementation on No Premium, No Cover, Rebates, and Brokerage Commission, Return or Refund Premiums and IFRS compliance and so on.
It is pertinent to know that different insurance products exist which includes; Fire, Burglary, Motor Vehicle, Life Assurance etc. Our major point of interest is the Motor Vehicle Insurance which comprises of different policies depending on each consumers needs and specification.
Third-Party Car Insurance
If you own a car and want to drive on Nigerian roads, Third Party Car Insurance is the minimum level of cover required by law.
However, the cover provided by this type of policy is very basic. Third party cover simply agrees to pay for damage caused to other people’s property, or compensation or costs related to injuries they sustain, in an incident adjudged to be the fault of the covered driver.
So this cover would pay out if you caused an accident and injured another driver – or their passenger.
But it does have its limitations, as it does not cover the cost of repairs to your own vehicle, and would not cover you if your vehicle was stolen or damaged by fire – meaning you would have to fork out yourself.
For this reason, third party insurance may be better suited to a motorist who drives an older car – rather than someone who owns a sporty little number.
Third Party Fire and Theft Insurance
If you’re looking for a greater layer of protection than that offered by third party only cover, you could consider third party fire and theft car insurance. This type of policy offers the same level of cover as that offered by third party only policies, but in addition, it also offers protection against loss or damage if your own car is burnt or stolen.
If you own a cheaper vehicle, you may want to consider opting for third party fire and theft insurance – rather than fully comprehensive cover – as this could work out cheaper.
But, once again, the key is to do your research, as premiums will vary according to a range of factors including the make and model of the car, along with any safety features.
Comprehensive Car Insurance
If you’re looking for the greatest level of cover from your car insurance policy, you should consider fully comprehensive car insurance. This includes cover for damage to your own vehicle as well as any damage suffered by others from a range of causes, including accident, fire and theft.
This is a greater level of protection than the cover offered by both third-party only and third party fire and theft car insurance.
That said, don’t assume that all comprehensive policies are the same, as some will cover the policyholder to drive another vehicle, or to drive their own car overseas – but not all will.
As a motorist, you need to take a moment to scour the terms and conditions to ensure the cover is right for you.
Similarly, while some policies will offer additional features such as breakdown cover, legal expenses cover and courtesy cars, Strike, Riot And Civil Commotion (SRCC), flood protection etc. These juicy offers will not be included in every policy, so you need to check this. If these features are important to you, you should find out at the outset if they are available – or whether you can purchase them as add-ons. But before buying any additional benefits, ask yourself whether you are going to actually make use of them; if not, you are wasting money buying cover that is of no use to you.
CHALLENGES
The Human Element
One of the largest challenges facing the insurance industry is the proper handling of the human element both in insurance professionals hired to do a job and those that are seeking coverage. Properly certified insurance professionals are able to detect misleading statements on proposal forms, identify possible criminal activity in false claims filing and fairly handle a justly filed claim within the limits of an insured person’s policy.
Managing Risk and Catastrophic Loss
Risk management is the backbone of the insurance industry. Companies that take on too many high risk policies may enjoy high premium returns but can also lose vast sums of cash. Insurance companies must take a careful look at how many policies are written in disaster prone areas of the country. An insurance company with too many policies in one area could potentially go bankrupt in the event of a natural disaster that forces a large number of policy payouts at the same time.
Maintaining Funds in Hard Economic Times
Price Waterhouse Coopers stated that instead of seeing collapsing assets, insurance companies have to deal with problems relating to collapses in hedge funds, structured securities and equities.
Reducing Costs
Cost cutting efforts can have devastating consequences to insurance companies, but is an issue they face in an effort gain capital. Insurance companies, as they determine which costs to cut, must look at forces behind costs. This helps them ensure a cut in one area does not increase the cost in another, which can make an insurance company less competitive.
BENEFITS
Peace of Mind
When consumers buy an insurance policy, they can achieve peace of mind. There is a comfort in knowing there is a certain measure of protection from unforeseen tragedies and losses.
Asset Protection
Certain types of insurance policies are designed to protect assets such as homes, cars, boats and other valuable tangible items. The policies will repair or replace these things if they are lost or destroyed.
Physical Protection
Some insurance policies are structured to protect the body. In the event that a person is injured, disabled or otherwise physically harmed, these products will compensate for those damages.
Income Protection
Lifestyle Protection
A certain type of insurance is designed to ensure that the lifestyle to which a family has become accustomed will continue for a certain period if a tragedy occurs and the major wage earner in the household is no longer able to produce an income.
In Conclusion, taking a critical assessment of Government�s intervention in creating awareness, regulatory bodies and insurance companies doing same has really helped to improve the public interest in Nigeria not forgetting the new introduction of MicroInsurance which is targeted at the poor and average income earners in the country. It is with great euphoria to announce a healthy, technology-based and impressive industry that will overtake other financial industry movers if the new policies are creative, actively and genuinely implemented without bias.
About the Author
Adebiyi M. Ayodeji is an Insurance Professional, Blogger, and Advocate of Financial Literacy in Youths. He is also the Owner of the @insuranceblitz Twitter Handle and the Insurance Nigeria Blog.
