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October - December, 2014


3rd Party Risk : Insurers Ignore N238 Billion - Simon Ugwu, Bunmi Shofola and Boluwaji Apanishile

Insurance industry’s inability to earn the abundant billions of naira cash available in the Nigerian market seems a capacity challenge that has evolved into a disdain for needful low hanging funds.


The evidence is large and clear that Nigerian insurance companies and professionals are not keen to make big money from retail insurance. The huge profit declared by any Nigerian insurance companies in their annual reports is dismal when compared to the legitimate amount the companies forfeited or failed to earn same year. Studies by Business Eye show all Nigerian insurance companies together refused not less than #80billion possible earning in 2014 from motor insurance alone and the insurers are yet to evolve the appropriate capacity or find the best way to tap into the ever growing yearly pool of money.

Motor insurance, one of the five compulsory insurance covers backed by law in Nigeria is a must for all motorists plying the roads; see other mandatory insurance in box, but only 20% of the motorists have valid insurance covers. The ratio is at 5% comprehensive and remaining 15% are Third Party covers. By implication, 80% of the approximated 20million motors on Nigerian roads, about 16million, are not covered by insurance. To complicate the matter, 30% or about 6million motors on the roads carry fake and invalid Third Party insurance covers issued by touts and mostly obtained from government licensing offices. When the unearned money from the millions of other vehicles like motorcycles and tricycles, that must statutorily have comprehensive insurance at five percent of value premium is added, then, the case of the insurance industry’s low appetite to earn gets very glaring.

Computing how much money the insurance industry fails to pick in a year by filling the yawning gap of opportunity depends on the approach used in the calculation. The clear fact is all agree not less than 80% of motors on Nigerian roads are not insured against risk. Using Sunday Thomas, Director General Nigerian Insurers Association, NIA, the umbrella body of all insurance companies in Nigeria’s, basic data that the industry generated #45billion from 3million motors with Third Party insurance, which is 15% of the approximated 20 million cars on Nigerian roads, then, #240billion waits for the insurers to pick. However, if the #5000 cost of Third Party cover is multiplied by the 16millon or 80% of vehicles on the roads, then, #80billion dangles to be picked by the insurers. Whichever way, facts suggest there is money, more than the two figures computed, to be earned from Third Party insurance yearly in Nigeria. For instance, the DG, NIA’s figures are actuals recorded in 2012; many of the insurance companies are yet to submit their 2013 trading figures to the association. 



Gbadebo Olamerun, president, Association of Registered Insurance Agents of Nigeria, ARIAN, attributed these facts to the low contribution of insurance industry to Nigeria’s Gross Domestic Product, GDP, which is the worth of the goods and services produced in a country within a given year. He said “insurance penetration in Nigeria is less than one percent”, while the Director General NIA, Thomas, confirmed that just a little more than 3million motor vehicles on the roads have valid insurance. Fatai Adegbenro, the Executive Secretary and Chief Executive Officer of the National Council of Registered Insurance Brokers, NCRIB, noted the prevalent trend as a loss to the people and the country, “it is a big loss to the insurance industry and Nigerians, because people are exposed to road accidents without adequate provision for compensation”, when the people could have been covered against the risk with a sum not less than one million naira by a valid Third Party bought for #5000.

The national loss is further compounded yearly with touts issuing fake insurance papers that overheat the economy and in a year they make not less than #6billion, tax free, from selling fake Third Party insurance to some 6million motorists at an average price of #1000 per ‘cover’. Lately, the touts have started selling their fake covers for #5000 to make it seem genuine.

Even when the insurance industry is yet to adequately tap the large sums from motor insurance, the Lagos State government opened yet another cash spinner for the industry as Toriola Abdullasisi Gbolahan, Chief Vehicle Inspector in Lagos State reveals that the state traffic law not only compels all motors on Lagos roads to have at least a Third Party insurance against accident risks, it is also the government policy that all commercial and passenger vehicles in the state must have insurance cover for all passengers in the vehicles at any point in time.

Dismissing the assumption that insurance companies have not been bullish on motor insurance as a smart way to claims avoidance on Third Party covers, Toye Odunsi, Deputy Group Managing Director, Custodian and Allied Insurance, says “the wrong impression that insurance companies don’t pay claims is false, claims payment is the best way to advertise. In the last two years, insurance companies paid between #7bn to #8bn to WAPCO, Coca Cola, Dangote Cement and Dangote Sugar”. Wole Fayemi, Group Head, Technical at Guinea Insurance corroborates this claim saying “no insurance company will shy away from claims; they are well capitalized to underwrite any business locally and internationally” and Taiwo Oyefemi, Head, Branch Operation and Network at Custodian and Allied Insurance asserts “more than 95 percent of claims are paid, but in any situation where there is breach of contract through default payment of premium, the party has the right not to honour the terms of agreement.

The National Insurance Commission, NAICOM, rule is “no premium, no cover”. Facts from the industry show a maximum ratio of 30% paid claims against premium earned, see chart on premium versus claim ratio. However, a scholar, Dr. Kunle Aduloju reasons the insurers might not be so keen to take on the Third Party burden that can cost more than a million naira compensation to a third party’s vehicle that may be damaged and an unquantifiable amount as hospital bills to injured persons.

At the December 2014 insurance summit, a three year plan was sold to the industry by the Finance Minister who doubles as the Supervisory Minister for the Economy, Dr. Ngozi Okonjo-Iweala. Details are that the industry in the next three years should raise its contribution to the GDP from #300billion to #1trillion, raise its total policy cover from 3million to 10million and employ 100, 000 Nigerians instead of the current 30, 000 engaged by the industry. Tall as this charge may be, the insurance has the capacity to deliver far above target when the industry is able to creatively package in a road map that enables Nigerians buy into the benefits of insurance covers. The spin offs from rousing the insurance giant could be the major fillip Nigeria needs to prospect and mine its large finance field for development funds.



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