Gus Wiggle
14 January 2009
(Page 2 of 2)
The resultant effect of this imbalance of power is that net operating cash flows for insurance companies in Nigeria are quite low (2006 average: 0.5% _ 19.7% of NPI), and the typical company carries a significant accounts receivable book on its balance sheet.
It is not uncommon for underwritten risks to materialize, for which premiums have yet to be received. Broker dominance is in my view, a key hindrance to industry profitability, particularly as regulatory pressure does not appear to be an effective deterrent.
More recently however, NAICOM has put in place new quarterly reporting guidelines that are aimed at promptly identifying defaulting brokers and hopefully, applying appropriate sanctions.
Unfortunately, the underwriting companies don't have the courage to support the efforts of NAICOM. They shield the unscrupulous brokers from NAICOM's search light; as a result, the brokers are clicking their glasses celebrating the weakness of the underwriting companies, and undermining the growth of the industry.
Though Insurance companies have also begin to think about alternative distribution channels _ retail and bancassurance, aimed at moving away from broker dominated accounts, the quick _ win attitude of most of the insurance companies has blinded them to this under_penetrated market.
While the oil and gas market is much too large to be considered an immediate opportunity, given the level of capital and technical know_ how of the insurance industry, the industry has not developed the manpower to handle the huge premium inflows associated with it, this may therefore continue to lead to huge premium placed in the international market to the disadvantage of our local economy. This is mainly due to absence of higher level training and technical expertise in oil and gas insurance to meet the market sophistication and advanced capacity.
Reasonable Pricing of Insurance Products
So much price war in the industry. When an industry is not creative, price war will become her only survival strategy.
One of the conditions for insurability is that the premium must be commensurate with the risk. The Nigerian insurance is the only market in the whole wide world that insurance premium reduces with every claims paid to an insured.
The question one is tempted to ask is, was the premium right in the first instance?
It is not certain that the industry have a scientific and realistic rating guide for her risks.
Underwriters have jettisoned the idea of pre_risk survey, some quote on risk they have not seen nor have idea about. The entire insurance market can be blamed for being involved in blind underwriting all because they want to grow their premium income without giving consideration to the risk and the exposure of investors' funds.
There is no geographical classification in our rating of risk, same rates are charged smokers and non_smokers, experienced and non experienced drivers etc in Nigeria, which goes to show we are more concern with premium income and not risk based income. How far can we go with this?
High Expense Ratio
The high expense ratio in the Insurance industry can not be justified and therefore should not be acceptable. It only shows how uncreative the industry is. The average expense ratio of the industry is about 52% of her premium income (these is excluding claims and reinsurance) it is not proper and can noj be justified in any environment that follows the tenet of proper Corporate governance; hence the profitability of the industry is very small wher compared to other sectors in the financial industries.
Collecting and Sharing Insurance Data
The level of fraudulent claims and avoidable losses in the insurance market i high because the Nigerian Insurance Market lacks reliable data to analyse and price risk adequately because of insufficient data to calculate losses anc expenses adequately. The Nigerian Insurers Association which would have been the data bank of the industry is not well equipped for the task, because the underwriting companies are always very reluctant to supply reliabh information to create a data sharing mechanism to assist in the analyzing risks.
Building Actuarial Resources
The industry can not boast of any accurate mortality table with which to evaluate the rating of its life business.
I may be wrong but the mortality table still in use today was developed over 40yrs ago! Can we say this is realistic in today's world when mortality risks are increasing in Africa?
We have not been able to produce a secured, efficient, effective and flexible life product today because of the lack of the technical skills to evaluate and adapt these products to local conditions for the reason of lack of efficient actuarial services. I understand that until very recently there were less than 7 qualified actuaries in Nigeria, I am not even sure if the numbers have increased as at today. There is therefore need to improve the actuarial capacity at local level through training.
Supporting Professional Insurance Education
If the Governor of the Central Bank of Nigeria (CBN) could come out to admit that there are not enough professionals/skilled staff in the banking sector to move the banking industry to the next level, your guess of the state of the required professionals/skilled staff for the Nigerian Insurance Industry, is as good as mine. The scope and horizon of the managers in the industry should expand and not be limited to insurance as modern day managers should be able to play in any field of the economy. ;
There is therefore urgent need for the Nigerian Insurance Industry to begin the building of reliable cadre of Insurance professionals for the market moving forward. The need for adequate training, in the development of our human resources can not be overlabored if we really want to get value for all the investment that is been put in the Nigerian Insurance market.There is need for the development of knowledge and skills in staff in every underwriting company and also the establishing/strengthening of the Insurance educational bodies.
Wiggle is the MD of Linkage Assurance Plc, being a paper delivered at BGL Insurance roundtable
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