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Chuks Udo Okonta
For every N100 of premium collected from insurance customers in Nigeria, the industry gives back only N24 in customer benefits, former Ekiti State Young Progressive Party Guber candidate/Consulting Actuary, Prince Debo Ajayi, has said.
He said this while speaking on a topic: ‘Making Insurance Friendly in Nigeria’ at the investiture of the 13th President of Institute of Loss Adjusters of Nigeria (ILAN) Diipo Olanrewaju in Lagos, adding that this act was consistent with the insurance value perspective of the Nigerian public that forms the basis of their decision to procure voluntary insurance despite their insurance needs.
He expressed misgivings about the insurance loss ratio in Nigeria, stressing that loss ratio is the ratio of incurred claims to premium earned over a period and that loss
ratio is the primary measure of the financial value of an insurance product to the
customers.
“Please note the definition carefully. It is different from Gross (Net) Claims Paid/Gross (Net) Premium Income.
“To calculate loss ratios correctly, paid claims figures must be adjusted for change in outstanding claims and premium income must be adjusted for change in unearned premiums.
“The loss ratio is about claims incurred versus premiums earned to support those claims,” he said.
Continuing, he said loss ratios, in essence, capture the returns to the customer for the premiums paid for insurance coverage, stressing that in Nigeria, per GIZ and FSS 2020 reports, the loss ratio varies from ~2 per cent to ~58 per cent, most being in the range of 10-30 per cent, and averaging around 24 per cent.
He maintained that in contrast, from OECD 2021 statistics, the loss ratio in USA is 70 per cent; 52 per cent in South Africa and 43 per cent in Egypt.
“We can argue to dispute these figures or even justify the low loss ratio. I am
aware that some incorrectly consider that low loss ratio is reward for good underwriting. Such underwriting gains, if shared with the customers in reducing premiums would have increased the loss ratio.
“This would suggest that low loss ratio situation over a long period is not good for the customer and invariably not
good for the industry.
“In fact, the Nigeria situation means that for every N100 of premiums collected
from insurance customers in Nigeria, the industry gives back only N24 in customer benefits! This is consistent with the insurance value perspective of the
Nigerian public that forms the basis of their decision to procure voluntary
insurance despite their insurance needs.
“Intuitively, you can expect a high correlation between (low) loss ratios and (low) insurance penetration rates,” he posited.
Ajayi said insurance penetration rate in Nigeria remains at 0.40 per cent of Gross Domestic Product (GDP) as of December 2021, adding that the figure composed of 0.20 per cent for Life business and 0.20 per cent for Non-Life. “I am sure we can all come up with several reasons to explain the low penetration, some of which are not within the control of the industry while others are.
“To put in perspectives, insurance penetration rate was reported at 12.20 per cent in South Africa in the same 2021, 2.20 per cent in Kenya, 1.10 per cent in Ghana and 0.7 per cent in Egypt. If you had doubled the size of the insurance industry in Nigeria, the economic relevance would still have been below 1 per cent of GDP.
“That should be both concerning and challenging to us,” he submitted.
