There is no silver lining for insurance companies in Africa’s largest economy as National Insurance Commission (NAICOM)’s No Premium No Cover Policy is undermining premium income in a tough and unpredictable macroeconomic environment.
The audited financial statement of 10 insurance companies that have released full year results showed cumulative net premium income fell by 4.67 percent to N61.65 billion from N64.67 billion as at December 2014. Cumulative Gross premium written remained flat at N88 billion.
“The dip was occasioned by the enforcement of No Premium No Cover regulation by NAICOM. In the past, most insurance companies books had a consistent increase in both premium income and premium debtors which create uncertainty as to the actual premium growth,” said Moronfola Olaseni, an actuary with Wapic Insurance Plc.
“The enforcement of this regulation made it mandatory for insurance companies to report only premium they have received payment in their books, hence the reduction in premium income,” said Olaseni.
Olaseni added that the high competition within the insurance industry had resulted to huge rate cutting by the underwriters. “The premium income on most of the big accounts had reduced due to this practice”
That portion of the Act (No Premium No Cover) clarified that “The receipts of an insurance premium shall be a condition precedent to a valid contract of insurance and there shall be no cover in respect of an insurance risk unless the premium is paid in advance.’’
Expert say the slowdown of economic activities at the port is also stifling the growth of insurance business as significant premium revenue they would have generated on Insurance on Goods in Transits (GIT) are lost.
GIT provide insurance on goods from the point of loading to destination.
The CBN has imposed restriction on the importation of 41 items from the official market. The edicts have made it difficult for manufacturers and businesses access to dollars to import raw materials.
Economic growth has slowed to 2.8 percent, the lowest in a decade.
There are positive prognosis for the 10 insurers as their cumulative average combined ratios (CR) of 94.25 percent is lower than the 100 percent threshold. A favorable CR means an insurance company is efficient and has strong financial strength.
The combined ratio is the combination of claims ratio underwriting expenses, underwriting expenses and acquisition costs.