Nigeria’s unbroken string of low loss ratios has positioned the insurance market as stingy on claims which international actuary consultant, Prince Debo Ranti Ajayi asserted, depletes the obligation of insurance to pay claims.
Building on the premise that loss ratio is about claims incurred versus premiums earned to support those claims, Ajayi said that Nigeria insurance practice low marks on loss takes off the mark even among developing countries where claims payment data points to higher loss ratio, placing same along side developed market where loss ratio is much higher he said placed the Nigeria market as paying low returns to the customer.
Ajayi, a consulting actuary with TAF Consulting Group, with related work and consulting experiences in US, Canada, Middle East, South Asia and Africa, explains further, “Loss ratios, in essence, capture the returns to the customer for the premiums paid for insurance coverage. In Nigeria, per GIZ and FSS2020 reports, the loss ratio varies from 2% – 58%, most being in the range of 10 – 30%, and averaging around 24%. In contrast, from, from OECD 2021 statistics, loss ratio in USA is 70%, 52% in South Africa, and 43% in Egypt.
“In fact, the Nigerian situation means that for every N100 of premium collected from insurance customers in Nigeria, the industry gives back only N24 in customer benefits. This is consistent with the the insurance value perspective of the Nigerian public that forms the basis of their decision to procure voluntary insurance despite their insurance needs.
“Intuitively, you can expert a high correlation between (low) loss ratios and (low) insurance penetration rates,” he explained.
He admitted that yet others might argue differently and by so doing justify the low loss ratio. Ajayi advances a reason why this route is preferred,” some incorrectly consider that low loss ratio is a reward for good underwriting. However, he said this has gone on without benefit to the customer. “Such underwriting gains, if shared with the customers in reducing premiums would have increased the loss ratio.”
In the 2022 Q4 report of the National Insurance Commission, the report sees loss ratio differently, that quarter report said, “the market recorded 47.2% net loss ratio during the period under review, suggestive of a workable, cost effective and profitable business in the industry.
This is mostly attributable to the life business sustaining its positive course at 46.5% net loss ratio in the current period while the non-life portfolio recorded about 48.1% during the same period. More so NAICOM sees the Q4 net loss ratio was an improvement on the previous quarter “depictive of an improved aggregate market desirability and profitability.”
Unimpressed by contrary data available, the guest speaker bearing his mind on the market practice said in his paper, “Making Insurance Friendly In Nigeria” at the investiture ceremony of Diipo Olarenwaju as the 13 President of the Institute of Loss Adjusters of Nigeria, said at the inescapable conclusion for the industry would be bad business for the customer as well as the industry. … low loss ratio situation over a long period is not good for the customer and invariably for the industry.”