Nairametrics|Nigerians may pay more for third-party vehicle insurance if a bill presently before the National Assembly goes through. The bill proposes that the premium be increased from its current level of N5,000 to N20,000 per annum. This could lead to bumper profits for some of the insurance firms in the country. Vehicle insurance is the major source of premium income in the Nigerian insurance industry.
While the increase may be justified, due to inflationary pressures, the underlying issues plaguing the insurance industry remain. There are too many poorly capitalized insurance firms. Many having negative retained earnings, an anomaly for any firm in the finance sector. Premium income is the dominant source of cash flow, with many paying lip service to investment income. Increased premiums will not change all this.
On the side of vehicle owners, this bill if passed, will increase the cost of maintaining vehicles particularly commercial types or vehicles that are over 15 years, which mostly are insured on third-party basis. Most Nigerians typically resort to the regulatory obligatory third-party insurance when renewing their vehicle license. A four fold increase could therefore trigger a rise in transportation cost across board and could also impact on inflation rate.
Just for the math, a N20,000 third party insurance suggest the vehicle is worth N400, 000 assuming a premium rate of 5%.