Low Claims Ratio Bane Of Insurance Penetration In Nigeria 

By LOVETH AZODO, Lagos

From statistical data, Nigeria is ranked nation with one of the lowest claims/loss ratio in the world as the nation’s percentage of claims costs incurred in relation to premiums earned stood at 46.1 percent as against the global acceptable rate of 60-90 percent. 

Insurance sustainability in Nigeria can not be achieved if it seems as if there are no reasons for dependency or the insuring public to lay their trust on the insurance companies to be able to carry their burdens when the need arise.

Experts in the industry have described an Insurance claim as a formal request for compensation made by a policyholder or a beneficiary of insurance policy, to an insurance company for loss suffered under the terms and conditions of the policy. 

Another definition sees claims as the heartbeat of insurance and as the most critical contract the insuring public has with the industry and thus critical moment of truth that shapes a customer’s overall perception of their insurer.

Most times, policyholders especially the motor insurance policyholders in Nigeria are ignorant of the power of their policy documents consequently parting away with huge amount of their money to cover for uncertain losses when it arise even when they are up to date with their premium. 

While for others, they do not believe that at the emergence of any loss that the insurance company will respect the agreement in the policy document in their possession. For some, due to the complexity of insurance, tend to shy away from the processes to ask for their right allowing themselves to be caught up with the “I don’t have strength or I don’t want wahala” syndrome. 

Hence, despite the Nigeria Insurance Industry data base initiative meant to encourage Nigerians to buy the compulsory insurance, the compulsory Third Party Insurance statistics by the Nigeria Insurers Association (NIA) shows that out of 12 million vehicles plying Nigeria roads, only three million have genuine insurance cover. 

Rating agencies has insisted that Nigeria insurance sector has not been able to ensure fast growth especially in spreading insurance services and penetration through mass patronage. 

Insurance Penetration in Nigeria has over decades remained at less than one percent, specifically maintaining 0.5 percent of the nation’s GDP, meaning that out of over 200 million population of the country, only 0.5 percent of the entire population buy insurance.

However, speaking at a retreat for Insurance Journalists with theme “Improving Stakeholders Perception: 2023 And Beyond” held at Uyo, Akwa Ibom state, the Commissioner for Insurance and Chief Executive Officer of the National Insurance Commission (NAICOM), Mr Olorundare Sunday Thomas, defined insurance Penetration as the insurance content of the nation’s GDP. He explained that  a GDP can also be impacted by macro economic factors.

“Nigeria is the largest economy in Africa, so for a meaningful penetration, the volume of the transaction in Nigeria must be something else. In some of the climes, we were talking about 17 trillion in pension Funds if you add that to the premium and add that to employee compensation fund all these are insurance funds, if you put it on the nation’s GDP you can’t be talking of 12345 percent, it is huge. 

“But with respect to pure insurance, I call it pure insurance because that is what we are calculating now in Nigeria.  Because employee compensation is severe, pension funds is severe so we are looking strictly on life insurance and non life business, I still believe as our economy, we are taking our own portion of the economy that is the only way we can grow this penetration and I think we are on course.”

NAICOM Boss warned insurers who default on paying the claims of policyholders to desist from such acts, as there would be strict consequences for such acts. He threatened that the commission will name and shame defaulting insurance companies.

He said, “With respect to claims, we have done a lot, and we are still doing a lot to ask insurance companies to be alert to their responsibilities. Recently, we issued letters to insurance companies to begin to advertise, asking those who have claims to come up with their documents to enable them to conclude documentation and effect payment. We have written and asked them, and given them a time frame in which to get this done.

“For companies that are not paying claims of people who have been fully documented, of course, there will be consequences. This includes naming and shaming, and it does not stop there because the claims would still be paid.

“I don’t enjoy doing such things, it shouldn’t be like that. Companies should willingly go ahead and settle their claims. There are so many claims that are being settled and nobody is talking about that.”

Thus, in his paper, “The Insurance Sector and The Nigerian Economy: Impact, Challenges And The New Frontiers” Dr. Usman Jankara explained that Claims ratio means how much of the money insurers collect is actually paid back to the policyholders who have suffered the claim. He further revealed that Nigerian Insurance sector recorded the lowest claims/loss ratio which stood an average of 46.1 percent. 

The Nigeria Insurance Sector Data showed that in 2014, The industry had the lowest claims payout in life and non life business of N33.6 billion and 65.5  summing up to N99.1 billion. The claims payout continued to increase as seen in  2015 it recorded N45.1 billion and N66 billion with total of N111.1 billion, in 2016 it paid N67.2billion and N78.6 billion, total of N145.8billion, in 2017, insurers paid N72.5 billion and N114 billion, total of N186.5 billion, in 2018, it grew to N131.7 billion and N120.4, total of N252.1 billion, in 2019, it recorded N123.3 billion and N101.4 billion with total of N225.1 billion, in 2020, it recorded N123.3 billion and N124 billion, total of N247.3billion while in 2021, it recorded N158.5 billion and 178.3 billion, total of 323.8 and in 2022, the insurance sector paid N145.2 billion and N173 billion, total of 318.2 respectively.

According to the data provided, the Nigerian insurance sector has been unable to reach the global acceptable ratio which is 60-90 percent of its written premium, from 2014 to 2022, the ratio recorded was 35.1, 38.4, 44.7, 50.1, 59.2, 44.3, 48.1, 51.3, 43.81 percent respectively. 

Commenting on this figures, Jankara stated that the loss ratio for 2015 to 2022 has remained within tolerable limits, making the sector relatively one of the most profitable globally. However, he lamented that the development is not a good phenomenon to the insurance industry because the more policyholders claims are settled the more the industry gains relevance and grounds in the country thereby deepening insurance penetration, but for the operators, he said it is profitable as they close their financial records with so much Profit After Tax (PAT).

“When the claims ratio is too low, what it means is that for every one Naira you are collecting from insurance policyholders, you are paying very little back by way of claims. And when you are paying very little, what it also means is that the value proposition that you present is not adding any value.” 

Assistant Director, Complaint Bureau Life, Mrs. Agustina Onojake, In her paper titled, “Re-Awakening the Nigerian Insurance Industry through Claims Settlement,” maintained that the Lack of trust and confidence in the Nigerian insurance industry is as a result of non-settlement of claims which she lamented constitutes one of the biggest challenges of the industry.

She urged insurance companies to endeavor to settle claims promptly because Claims payment in insurance contract serves as spice that attracts potential policyholders to insurance patronage.

“Ideally, a prudent claims settlement promotes customer contentment and allegiance. In other words, claims settlement is the activity of insurance companies that truly portrays what they are there for, because claims settlement is the reason for insurance contract.”

She cited “Section 70 (1) (a) of Insurance Act 2003, which requires the insurance companies to settle all admitted claims within a maximum time frame of 90 days, and where claims are repudiated, the insured should be communicated by the insurer within 90 days from the date the claims are delivered to the insurer in line with Section 70 (1) (c) of the Act. If the insurance company needs to investigate the claim, it should do that within 90 days.”

She revealed that despite the provisions of the Extant Laws, claims settlement has remained a mirage by some insurance companies. Experience has shown that some insurance companies were unable to settle claims due to weak Capital Base, Insolvency, Poor Underwriting, etc.

Proffering solutions to the low claims ratio she stated that creating awareness on claims notification and documentation is another factor that must be taken into consideration.

“Most of the policyholders lack awareness on claims notification and documentation. There is a need to create awareness on this because it will enable the claimants to provide adequate documents needed for their claims for prompt settlement. This will aid prompt claims settlement and in turn re-awaken the Nigerian Insurance Industry.”