With the double digit inflation and naira devaluation affecting the prices of goods and services across the country, the owners of the 16 million vehicles plying Nigeria’s roads will have to pay N16 billion more to either purchase or renew their third party motor insurance policies in the current year.
Currently, third-party motor insurance is sold at N5,000 per policy but inside sources said the policy is set to witness a minimum of N1,000 increment, taking the rate of third party motor insurance cover to N6,000.
This shows that the 16 million vehicles in the country will pay a cumulative N16 billion more, if the insurance operators finish the planned review of policy rates by the second quarter of the year.
The proposed increase, industry sources revealed, will also affect comprehensive motor insurance policy and this will shoot up the cumulative motor insurance premium above N16 billion.
With majority of vehicles in the country imported, volatility in the foreign exchange (FOREX) market has increased the prices of vehicles and car parts, while the federal government’s ban on vehicle importation through land borders is also pushing the prices of vehicles up, a development that means insurers will now spend more on claims for third party motor insurance cover as well as comprehensive motor insurance policy.
A committee has already been put in place to commence the policy rate review process and implementation of the new rate may commence latest by the second quarter of the year.
The planned rate review, it was learnt, is also aimed at proffering solutions to the issue of rate cutting in the industry, in a bid to ensure that the policy is sold at a uniform price.
The increase in motor insurance policy may also be extended to other insurance policies as times goes on, it was learnt.
The chairman, Nigerian Insurers Association (NIA), Mr Eddie Efekoha, stated that the devaluation of the Naira against international currencies and its attendant effects has had a toll on the insurance industry, pointing out that the sector paid more claims last year than the previous years, thus, necessitating the need to review rates this year to be able to meet up the demand.
This, according to Efekoha, who is also the managing director of Consolidated Hallmark Insurance Plc, is because the exchange rate for a dollar has risen to about N470 in the parallel market, leading to inflation in the prices of goods and services, especially, with the country being an import-dependent nation.
To this end, he said the price of replacing insured property has risen tremendously, as much as 100 per cent in some cases, even when policies were underwritten in the old prices.
This, according to him, had led to huge losses for insurers in compensating the claimants, just as it has equally eaten deep into the little profits some underwriters made last year.
The most affected classes of insurance, he pointed out, are: motor insurance, building insurance and medical insurance, among others.
“We witnessed higher claims in 2016 than in 2015 and the reasons are obvious. As at December 2015, the price of dollar against naira was N199, but today, it is N470.
“Most property are insured in their old prices but now the building materials have increased, meaning we are going to pay more, to reinstate a damaged building. The same goes for medical insurance as the prices of most of the drugs have equally gone up as a result of volatility in exchange rates. Replacing a damaged vehicle will cost more than it cost a year ago, when the policy was undertaken,’’ Efekoha stated.
He, however, noted that the insurance industry may need to review the prices of some policies taking into consideration the inflationary trend.