Insurance companies which fail to embrace retail and apply modern technology to drive operations run the risk of winding down.
This is moreso, as margins from corporate and formal businesses, which formerly contributed the bulk of industry premium, thins- out, as result of falling rates and rising expense, amidst rising claims.
As at the end of 2014, when the entire insurance industry recorded a total gross premium N184.97 billion on non-life business, claims ratio was 27.61 percent, while expense ratio was 28.18 percent. But as at the end of 2015, when the gross premium on the same non-life dropped to N178.49 billion, claims ratio rose to 30.62 percent, while expense ratio stood at 30.16 percent, according to figures from the Nigerian Insurers Association (NIA).
The figures show that gross claims increased from N51.06 billion in 2014 to N54.65 billion in 2015 representing a 7.03 percent increase, while management expenses increased from N52.12 billion in 2014 to N53.65 billion in 2015 an increase of 3.27 percent.
This further reveals that as gross premium is dropping, claims and operational expenses are rising, meaning lower profit margins.
Analysts say that to remain profitable and meet shareholder expectations, insurance companies must diversify premium sources towards the retail space and in segments that are less volatile.
They also must apply technology in product distribution and premium collection to be able to deepen penetration and reach the mass of the uninsured population, particularly at the grass-roots, the analysts said.
Mayowa Adeduro, managing director, CEO, Anchor Insurance Limited, said companies that are not ready to play with technology and look at the retail space will have their margins thin-out because if you look at the formal sector the margins are thinning out.
Adeduro said some insurance companies were able to post profit in 2016 because they looked into the street for ordinary people’s insurance, rather than focusing on formal businesses, as was done in the past.
He noted that rates were crashing, premium was falling and claims were going up. This, he said, affected the underwriting performance of insurance businesses.
“Generally, rates are crashing and they will continue to crash because of the softness of the market. But companies that can look elsewhere and those that can be innovative, will still be able to manage their cost.”
Bathlomew Ayola, an insurance broker, revealed that companies are offering very ridiculous rates to insure cars, even when the vehicles are very expensive.
“Imagine, a Toyota Corolla that was sold for N3 million, now three years down the line , it is going for as much as N1.7 million, and you are going to insure it at a cheap rate. That means, you are going to insure them at their old price, and you will be replacing them on the price of new spare parts, and that will mean more claims for this class of business, that is the situation”, Ayola informed.
The Deloitte Centre for Financial Services, in its report on Insurance Sector Outlook for 2017 said to adapt to today’s rapidly evolving, consumer-centric culture, and increasingly technology-driven economy, insurers need to continually upgrade their operating systems, business models, and value proposition in 2017 and beyond.
Deloitte said they should also consider undertaking an ongoing, holistic transformation of products, services, legacy systems, and business processes to drive growth, bolster efficiency, improve customer experience, and head off emerging competition.
Steps to take, according to the agency, include developing new products to meet emerging coverage needs in a sharing, connected economy ,as well as expand digital distribution and virtual service, to cut cost and gain competitive advantages.
Modestus Anaesoronye
