Due to the prevailing economic recession in the country, many insurance consumers are gradually terminating their life policies.
checks also show that existing insurance buyers, both retail and corporate are seeking for discounts on their premium while some have stopped purchasing entirely.
According to experts, as long as the recession persists, the negative trend will continue and the development could impact negatively on insurance companies’ results at the end of 2016 financial year.
Managing Director of FBN Life Insurance Limited, Mr. Val Ojumah said that in periods of economic gloom as being experienced in the country, consumers refocus their spending to essential commodities.
Managing Director of Risk Analyst Insurance Brokers Limited, Mrs. Funmi Babington-Ashaye also said, “Individuals who insure comprehensively in the past are abandoning comprehensive insurance for third party because of the hard economic situation in the country. Also due to the inability of individuals and corporate organisations to access foreign exchange, insurers have not been able to meet up with their reinsurance agreement with foreign reinsurance companies.”
Investigations reveal that it has been very difficult to get forex to pay for insurance premium to overseas reinsurers for aviation and oil and gas businesses. Till this moment, a lot of companies have not been able to send reinsurance premium overseas, due to the fact that very small proportion of large risks insurance like oil and gas as well as aviation are kept in the local market while close to 80 per cent are ceded abroad. Consequently, a lot of premiums are stuck in the country.
Babington-Ashaye said, “Claims are mounting high due to inflation. By the time you adjust claims in relation to the prevailing exchange rate, you just have to pay according to the adjusted figure and the prices have gone up. There are a lot of big claims in the industry today because many organisations in the country are having big issues that are affecting their profitability.”
In the same vein, Director General of the Chartered Insurance Institute of Nigeria, CIIN, Mr. Richard Borokini told Vanguard that a lot of local industries have closed shop because they could not purchase raw materials for their operations, hence insurance covers for such companies died with them, hitting hard on the sector.
Recall that following a 0.36 per cent negative growth in the first quarter of 2016, Nigeria’s economy slipped into a recession with a 2.06 per cent year-on-year decline in the second quarter of 2016 as real Gross Domestic Product (GDP) closed at N16.12 trillion. The decline was mainly driven by declines] in manufacturing, mining& quarrying and real estate sectors.
Accordingly the non-oil sector declined by 0.38 per cent while the oil sector recorded negative growth of17.48 per cent as crude oil production fell quarter-on-quarter by 20 per cent to 1.69 million barrels per day, mainly due to recurring pipeline vandalism by militants in the Niger Delta region. On a positive note, however, agriculture sector grew y-o-y by 4.53 per cent on account of increased crop production as a result of the onset of the harvest season.
Meanwhile, unemployment rate increased to 13.3 per cent in the second quarter of 2016 (higher than 12.1 per cent in the first quarter of 2016) as number of unemployed in the labour force increased by 1.16 million persons to 10.64 million persons. The rate of underemployment also increased to 19.3 per cent (representing 15.4million persons) in the second quarter of 2016 from 19.1 per cent (representing 15.02 million persons) in the first quarter of 2016.
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