Agusto & Co has said that the increase of third-party motor insurance policy rates by the National Insurance Commission (NAICOM) would help boost the Gross Premium Income (GPI) of Nigerian insurance firms in FY 2023.
The credit rating agency stated this in its 2023 insurance industry report obtained by Nairametrics.
The report also reviewed how the Nigeria insurance industry has fared amidst the lingering macroeconomic headwinds and outlook for the Industry in an election year. The report noted that the increase in third-party motor insurance policy rates by the top regulator NAICOM was one of the industry’s notable highlights for 2022. In the report, it was stated:
The new premium for private vehicles has been increased by NAICOM to N15,000, for staff buses to N20,000, for commercial trucks and general cartage to N100,000, for commercial tricycles to N5,000, and for commercial motorcycles to N3,000. Until recently, the basic rate for these policies was N5,000. The comprehensive motor insurance policy premium rate should not be less than 5% of the sum insured after all rebates or discounts, NAICOM announced in addition to the new premium rates. Agusto & Co. believes that despite some criticism, the policy would mitigate the associated business’s rising loss rates.
Agusto & Co. states that the estimated gross premium income (GPI) of the Nigerian insurance industry maintained a double-digit growth trend and exceeded N700 billion in FY 2022. They also state that the increase in the industry’s premium was caused by a number of factors, including improved economic activity and stronger regulatory support.
The agency stated that while the payout of claims resulting from the violence that followed the #EndSARS protest moderated the Industry’s performance in FY 2021, such outflows were minimal in 2022 given the non-recurring nature of the crisis.
As a result, compared to the prior year, the estimated net claims growth for the Nigerian insurance industry for FY 2022 was slower at 13%. Inflationary pressures, however, continue to have a negative impact on claim settlements, underwriting costs, operating expenses, and also moderate .
As a result, compared to the prior year, the estimated net claims growth for the Nigerian insurance industry for FY 2022 was slower at 13%. Despite this, inflationary pressures continue to negatively affect underwriting costs, operating costs, claim settlements, and moderate profitability indices. We also acknowledge that the country’s security lapses, infrastructure shocks, and #EndSARS protest fallout have highlighted the advantages of insurance products, particularly fire and general accident policies, according to the report.
Agusto & Co further noted that the non-conventional takaful insurance segment, which is an under-tapped area, is already witnessing significant growth as evidenced by the marked 172% growth in GPI in FY 2021.
“We anticipate that the segment would continue on its upward trajectory in the near term. Takaful insurers offer alternatives to conventional insurance and their model is based on the concept of social solidarity, cooperation and mutual indemnification of losses of members.
“We believe that these alternative insurers would continue to leverage the large Muslim population in Nigeria estimated at over 100 million to grow the segment. Albeit, the relatively low awareness of these alternative products remains a challenge to be surmounted.
“Microinsurance is also poised for growth given the dwindling consumer purchasing power, large informal sector and relatively high poverty rate in the country,” the agency said.
