New vehicle insurance: Emerging issues

Insurance stakeholders and vehicle owners have continued to react to the new premium rates for various classes of motor insurance approved by the National Insurance Commission (NAICOM) on Dec. 22.

With the new policy, third-party motor insurance policies will be increased from N5, 000 to N15, 000, with effect from January 1, 2023.

NAICOM announced the new policy in a circular titled "New Premium Rate for Motor Insurance" with the number NAICOM/DPR/CIR/46/2022, signed by the Director, Policy and Regulation, NAICOM, Mr. Leo Akah.

"Pursuant to the exercise of its function of approving rates of insurance premium under Section 7 of the NAICOM Act, 1997, and other extant laws, the commission hereby issues this circular on the new motor insurance premium rates effective from January 1, 2023," NAICOM said.

A vehicle owner, Mr. Hakeem Olagunju, said on Friday that the decision of NAICOM was unreasonable and ill-timed in view of the prevailing economic situation.

Olagunju stated that insurance firms indirectly owed many vehicle owners in Nigeria claims that were not presented, as many of them were not even aware of the benefits of motor insurance and rarely made claims in the event of accidents.

He noted that most vehicle owners had been paying the reviewed N5, 000 third-party motor policy but had not been presenting claims because of the tedious process of claim payment by insurance companies.

"We are not expecting this increment from the insurers because they have been benefitting 'free N5, 000,' yearly from millions of vehicle owners for years now without paying us claims.

"This 200 percent increment on the various classes of motor insurance is not justifiable and should be revisited by NAICOM to prevent more hardship for average Nigerians."

"With the current insurance penetration level and contribution of 0.4 percent to the GDP,, the focus of NAICOM should be on how to improve insurance penetration through prompt claim payment."

"This would boost the level of trust and commitment of Nigerians to insurance," he said.

His view was corroborated by Mr. Adams Isiaka, a commercial bus driver and member of the Nigerian Union of Road Transport Workers (NURTW), who said the 200 percent increase in the rate of motor insurance would compound the woes of Nigerians.

Isiaka stated that vehicle owners were already incurring lots of expenses on their cars and, as such, should not be unduly ripped off by insurance companies.

He lamented that he had never gotten any claim from his insurance company since he had been paying the N5, 000 motor insurance policy rate because he had never presented a claim and was not interested in doing so.

The commercial driver noted that if the commission insisted on implementing the policy, just as other commodities in the market such as vehicle spare parts and the cost of repair had been jacked up, it should not be more than a 50 to 75 percent increase.

He said the government should make motor insurance policies optional for vehicle owners if possible to prevent insurance companies from making "free money" through the policies.

"The government should make the motor insurance policy optional for us because we have not been benefiting from it and can't be paying that much for something we don't benefit from."

"Those who are interested in processing claims payments can go ahead and buy the policy, but for people like us who are not interested, they should leave us to our faith," he said.

However, Mr. Edwin Igbiti, president/chairman of the Governing Council of the Chartered Insurance Institute of Nigeria (CIIN), said in spite of the current high inflation rate in the country, the review of the policy was long overdue.

Igbiti said although NAICOM and the insurance operators were still holding talks on the reviewed policy, the focus was on how insurers would enhance their operations to make the increment worthwhile.

He stated that, compared to other African countries, Nigeria's premium rate remained one of the lowest in terms of third-party motor insurance.

The CIIN president noted that the increment was justifiable because it had enhanced coverage, which included the ECOWAS Brown Card.

He explained that the ECOWAS Brown Card covered Nigerian vehicles within the country and in the ECOWAS region, adding that this was in line with the agreement reached by all heads of ECOWAS member countries.

"This was factored in to make up the new price, which is good for us all.

"The only snag I observe is the timing of the new policy, which was released in December.

"This is because by December, every company that is serious about insurance must have concluded their plans for renewal in January."

"Having made their budgets ahead of the New Year, it would be inconvenient for them to start adjusting their budgets to accommodate the new price."

"I would have suggested the announcement be a notification while the effective takeoff date is April 2023, so that everyone is well prepared for it," he said.

Igbiti appealed to the public and insurance policy holders to embrace the decision of NAICOM with the understanding that the old price was no longer feasible and the new price included enhanced features.

He urged insurance companies to be more responsive to the payment of claims, as NAICOM had announced its preparedness to sanction any erring insurer.

The CIIN president said, "If insurance firms are showing evidence that they are paying claims, people will see value and will not question the amount they are paying."

Igbiti stated that if the new policy was fully embraced by the operators and the public, it would lead to an increase in premium generation, sustain claims payment, and boost insurance penetration.

In the view of Mr. Moses Igbrude, National Coordinator, Independent Shareholders Association, the new price is a welcome development as the reviewed N5, 000 premium rate is no longer realistic.

"To be honest, is the N5,000 premium paid by motorists in a year worth it, to get a N1million cover in the event of accident with the inflation on cost of spare parts and other services?

"The only reason why many Nigerians might be querying the increment is because most of them have been buying the policy just to avoid embarrassment by security personnel and not because they have been taking advantage of the policy."

"Also, many others do not even buy insurance policies at all because they are good at producing fake documents," he said.

He added that NAICOM had proposed the policy sometime before now but only recently announced the January 1, 2023, date for implementation.

The shareholder said the policy, which was mandatory, if properly implemented, would have a positive effect on the insurance industry and consumers.

Igbrude stated that the new premium rate would make consumers more conscious of presenting claims, as no average Nigerian would spend N15, 000 on insurance and not make claims in the event of an accident.

"As of today, the insurance companies are the ones benefiting from the third-party motor insurance premium because many vehicle owners do not present claims but prefer to fight on the road when accidents occur and settle themselves out-of-pocket.

"But with this new rate, the consciousness of the consumers would be awakened to know that if they can pay as much as N15, 000, they should be able to take advantage of the claims inherent in the policy."

"This will reduce or eradicate incidences of vehicle owners fighting on our roads and encourage them to exchange their insurance policy certificates for the insurance firms to do the needful," he said.

Igbrude charged NAICOM and insurance companies to begin massive education of consumers on the benefits of the policy.

He said consumers would be happy to pay the premium for any class of motor insurance once the benefits were clearly spelled out and understood.

He urged NAICOM to rise to the task of monitoring and sanctioning insurance companies involved in premium rate undercutting.

"To me, N15, 000 is okay compared to the value of our currency and inflation in the country, but our insurance operators should practice insurance in line with global standards."

"Unfortunately, some of the insurance companies would charge lower rates than the approved rates just to generate more premium, so the regulator must be awake to its responsibility," he said.

By the new policy, Third Party Property Damage (TPPD), which is the limit of claims an insured can enjoy on a policy for private motor, will now be N3 million for the new premium rate of N15,000.

The limit for own goods is N5 million, with a new premium of N20, 000, while the premium rate for staff buses is now N20, 000 and its TPPD is fixed at N3 million.

Commercial vehicles, trucks, and general haulage now have a TPPD limit of N5 million with a N100,000 premium rate; special types now have a TPPD limit of N3 million and a premium of N20, 000.

Tricycles now enjoy a TPPD limit of N2 million against a premium of N5, 000, while motorcycles now have a TPPD limit of N1 million and a premium of N3, 000.

According to NAICOM, the comprehensive motor insurance policy premium rate shall not be less than five percent of the sum insured after all rebates or discounts.

The commission warned insurance companies to be guided by the new policy, as failure to comply with the circular would attract appropriate regulatory sanctions.

The last increment on motor policy before now was implemented by NAICOM in 2004, which raised the policy rate from N1, 000 to N5, 000, a 400 percent increment, while the country's inflation rate was 15 percent at that time.

The latest 200 percent increment on the motor insurance policy by the commission comes at a time when the country's inflation rate stands at 21.47 percent.

The Nigerian Insurers Association (NIA) noted in a report recently that only about three million vehicles out of 13 million on Nigerian roads were insured as of April 2021, indicating that about 77 percent of the vehicles on Nigerian roads were not insured.

The association said it was losing about 10 million of its potential clients to insurance racketeers and non-insurance of vehicles, as most of the defaulters used fake motor insurance papers or bribed law enforcement agents to avoid arrest.

It is believed that the insurance industry has the capacity to generate over N50 billion in premiums annually if all vehicles on Nigerian roads had genuine insurance. That remains a tall task for stakeholders in the insurance sector.

By Rukayat Adeyemi