Leading insurance companies in Nigeria are facing a considerable challenge as they reported a substantial increase in net claims paid, reaching N116.636 billion in the first nine months of 2023. This marks a significant surge from the N96.902 billion recorded during the same period in 2022, reflecting a notable growth of 20.36%.
The surge in claims has cast a shadow over the premium growth rate and overall profitability of insurance firms in the country. Economic challenges, inflation, and a rise in fraudulent claims have all contributed to this predicament, according to data compiled by Analysts.
The information has been meticulously gathered from the financial reports of prominent insurance companies listed on the Nigerian Exchange, including AIICO Insurance Plc, Custodian and Allied Investment Plc, NEM Insurance Plc, AXA-Mansard Plc, Mutual Benefits Assurance Plc, Cornerstone Insurance Plc, and Consolidated Hallmark Insurance Plc.
In addition to the increased claims, these insurance companies reported a total of N339.848 billion in gross premiums during the review period, showing substantial growth compared to the N274.628 billion recorded in 2022.
One crucial insight from the data is that insurance companies allocated 34.32% of their premium revenue toward claims expenses, a slight reduction from the 35.28% recorded in the corresponding period of the previous year, suggesting a potential stabilization in the industry.
The escalating claims have had a profound impact on the premium growth rate and overall profitability of insurance firms, according to experts in the sector. Economic challenges, difficulties in accessing foreign exchange, security concerns within the country, and global events, such as Russia’s invasion of Ukraine, have further exacerbated the challenges faced by insurance companies.
Inflationary pressures have adversely affected the financial well-being of many Nigerian households, intensifying the challenges faced by insurance companies. Additionally, the shrinking revenues of both federal and state governments, the devaluation of the Naira, and soaring energy costs have added to the hurdles faced by the industry.
The financial performance of seven Nigerian insurance firms, highlighted based on published financial statements, reveals the extent of the challenges:
– Consolidated Hallmark Insurance – N3.256 billion
– Cornerstone Insurance Plc – N4.870 billion
– NEM Insurance Plc – N5.826 billion
– Mutual Benefits Assurance Plc – N12.700 billion
– Custodian and Allied Investment Plc – N21.958 billion
– AXA Mansard Plc – N30.448 billion
– AIICO Insurance Plc – N37.578 billion
Industry operators point to the economic downturn, increased social vices, low maintenance culture, and fraudulent claims as contributing factors. Mayowa Adeduro, Managing Director of Tangerine General Insurance Plc, highlighted that inflation has significantly impacted living costs, leading to a surge in insurance claims.
Adetola Adegbayi, Chairman of the Nigeria Liability Insurance Pool, urged the industry to be proactive and dynamic in claims management to address the challenges posed by hyperinflation and unemployment.
As insurance companies navigate these challenges, the need for a proactive and dynamic approach to claims management becomes paramount for the industry’s sustainability.