COVID-19: Insurance industry faces N324bn premium loss this year

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•    ‘Pandemic renders projected N12trn base a mirage’

Uba Group

…as fear of sector’s extinction grips operators

As the novel COVID-19 keeps ravaging countries across the world, Nigeria’s insurance industry may suffer tangible business losses in the region of N324billion, out of the total gross premium expected to be generated in 2020, The Point has learnt.

Already, the N12trillion projected premium base set by the Nigerian Insurers Association under the Finance Sector Strategies Committee for itself this year is not only seriously threatened, but has also slipped into the realm of a mirage with the ravaging pandemic, industry experts opine.

Industry experts say the COVID-19 pandemic has made its realisation more of a wishful thinking as the insurance sector is faced with huge loss of premium this year.

In 2019, Nigeria’s insurance industry generated a total gross premium of N413.8billion, according to statistics from the NIA.

This represented an increase of N13.8billion, when compared with the N400billion the industry recorded in the preceding year.

According to the NIA, the industry has sustained the path of marginal growth in the past three years as it recorded 10 per cent growth in gross premium, from N363billion in 2017 to N400billion in 2018.

In 2019, insurance brokers generated N220.89billion of the N413.8billion gross premium realised by the industry. This represented 53.37 per cent of the gross premium income recorded by the insurance industry.

The insurance industry in the country has, for some years now, been striving to meet its target of transforming from a billion-naira premium income market to a trillion-naira market through the various market development programmes.

But with the raging COVID-19 pandemic, industry experts say this appears to be a tall dream, as the disease has been spiking downtrends in markets, with the sector also taking the heat as a member of the global financial community, which has been particularly volatile in recent weeks.

As at the time of filing this report, no fewer than 21 persons have died from Coronavirus-related complications in Nigeria. President Muhammadu Buhari’s Chief of Staff, Mallam Abba Kyari, died on Friday, 25 days after he tested positive for the deadly disease.

The Director-General, World Health Organisation, Tedros Ghebreyesus, said on Friday that Africa recorded a 60 per cent increase in the number of deaths associated with coronavirus in the last one week.

Insurance experts told The Point that the raging pandemic had made the realisation of the industry’s trillion-naira premium base projection for this year unrealistic as the long-term effect of COVID-19 on the economy would make the comprehensive implementation of compulsory insurances and the development of the mortgage market, earlier projected to have the capability to generate about N1trillion this year, impossible.

Similarly, the pandemic is expected to have negative effects on the benefits derivable by the insurance industry from the hitherto fast-growing credit market, Small and Medium Enterprises and housing sector development, this year, on which the attainment of the trillion-naira premium base projection has been anchored.

This situation, it was learnt, could even be worsened by the capability of the currently ravaging pandemic to dampen the support, which allied industries, such as banking, mortgage and credit markets, telecommunication and education sectors, are expected to render the insurance industry.

A professor of Economics, and former insurance broker, Augustine Udemba, said with the ravaging pandemic, the industry’s profit would dwindle as a result of high claims arising from travel and life insurance, as well as claims from policy holders, who had insured against business interruption.

“At the end of the day, the industry could be losing about N324 billion profits to the Covid-19 pandemic,” Udemba exclusively told The Point.

“CBN"

According to him, with companies closing down globally and having financial challenges, it will be difficult to get Foreign Direct Investment into the Nigerian insurance industry.

“Companies that wanted to invest in Nigeria before now are, by themselves, needing financial bail-out. So, the recapitalisation exercise is going to be tough. Even, if the investors are to come, the closure of the two international airports will prevent their entry, at least for now,” the economic expert added.

The pandemic is causing panic and greatly hurting economies of various countries with many businesses shutting down. In Nigeria, more cases of the spread have been announced by the authority in various parts of the country.

Speaking in the same vein, an Insurance broker, Mr. Ganiyu Akinwale, said there was a great danger that the insurance industry might go into extinction if urgent measures were not put in place to rescue it from the effects of the ravaging coronavirus pandemic.

He added, “It is certain that we will see insurance businesses fail and quite possibly in significant numbers. Beyond the impact on travel insurance, if it continues, it will affect the growth of businesses; because no position paper has been released by the sector’s actors on how prepared they are to curb the menace.

“Unfortunately, Nigerians are rather reactionary other than proactive in event of epidemic of this nature. Even the fire outbreaks that have cost the economy hundreds of millions of naira in recent times have been handled with kid’s gloves to the detriment of the victims and the larger economy.”

The Group Managing Director/Chief Executive Officer, Consolidated Hallmark Insurance Plc, Mr. Eddie Efekoha, said 2020 would be a challenging year for insurance operators, especially with the effect of the raging COVID-19 pandemic.

“This is because insurance industry may not pay claims for business interruption flowing directly from the outbreak of Covid-19, due to the absence of the cover. But the sector remains poised to respond appropriately when business interruption occurs due to specified risks in policies like fire outbreak, explosion damage,” he said.

The Managing Director/CEO, Universal Insurance Plc, Mr. Ben Ujuatuonu, said it was no longer a secret that the global economies, as well as the local economy, had been affected by the epidemic, because “the world is now a global village.”

According to him, companies are already closing down across Europe and Asia, owing to financial challenges.

He added that the drop in global crude oil price already had its implications on the nation’s 2020 budget, forcing the Federal Government to cut it down by N1.5trillion.

The foreign loans meant to augment the budget, he said, might not be coming anytime soon, adding that this would mean that the country would have to struggle to implement its budget.

Ujuatuonu said that the country’s insurance industry was neither isolated nor insulated from all these vagaries of the economy.

A capital market operator, Mr. Emmanuel Jibunor, said insurance firms would be in the forefront of the sectors to feel the pains of any wide scale illness or travel disruptions because, following countless cancelled flights, many holidays and events, travel and leisure businesses would begin to quickly feel the effects of disruption and would not hesitate to make claims.

He said, “With business and leisure trips cancelled, plans amended and access to some parts of China restricted, individuals and businesses have had to make claims on their travel insurance as a result of the coronavirus.

“Travel insurance covers medical treatment, repatriation, cancellation of trip and treatment while abroad, but the level of cover varies greatly depending on the policy that has been purchased.”

A financial analyst, Mr. Yinka Gbadamosi, explained that global epidemics such as the coronavirus were usually excluded by insurance companies, owing to fear of the large claims they bring to insurers, except in a few cases that are mostly dependent on the kind of policy obtained by clients.

He, however, noted that, despite the exclusion, the insurance industry would still be affected by the pandemic in areas like business interruptions, travel and health insurance policies.

Also speaking on the development, Director-General, Lagos Chamber of Commerce and Industry, Dr. Muda Yusuf, said Nigerian manufacturers were also feeling the heat as access to critical raw materials needed to sustain their operations had been affected. He said the performance of key sectors with the capacity to facilitate economic diversification had largely been constrained.

“The global supply chain has been deeply disrupted as China, which is the second largest economy in the world, is a major supplier of inputs for manufacturing companies around the world, Nigeria inclusive,” he said.

According to him, manufacturers and service providers in the country are already experiencing acute shortage of raw materials and intermediate inputs.

“This has implications for capacity utilisation, employment generation and retention and adequacy of products’ supply to the domestic market,” he said.