The National Insurance Commission (NAICOM), at the twilight of 2022, announced an increase in the premium for third party motor insurance, which became effective on January 1, 2023. SULAIMON OLANREWAJU looks at what the new rate portends for the industry and the economy.
After running the N5,000 third party motor insurance premium for about 19 years, the National Insurance Commission (NAICOM) announced a new premium for the policy towards the end of last year, though discussion had been on with stakeholders on the need to jack up the premium ahead of the eventual announcement.
In a circular issued on December 22, 2022, the National Insurance Commission (NAICOM) had stated that “Pursuant to its function of approving premium rate of insurance companies under Section 7 of NAICOM Act 1997, and other extant laws, the Commission hereby issues this circular on the new motor insurance premium rate effective from January 1, 2023.”
The circular, signed by NAICOM’s Director of Policy and Regulation, Mr. Leo Akah, states further, “Third party insurance policies inclusive of Ecowas Brown Card, EBC, shall be as follows: private motor, N15,000, TPPD limit N3 million; Own goods, N20,000, TPPD limit N5 million; staff bus, N20,000, TPPD limit N3 million.”
It adds that commercial trucks and general cartage will pay N100,000 premium for N5 million TPPD limit; tricycles to pay N5,000 for N2 million TPPD limit, and motorcycles to pay N3,000 for N1 million TPPD limit, “special types’’ of vehicles will pay N20,000 premium while the TPPD limit has been raised to N3 million.
The circular also noted, “For a comprehensive motor insurance policy, the premium rate shall not be less than five per cent of the sum insured after all rebates and discounts.”
The reactions that greeted the announcement were not unexpected. Many people believe that raising the premium by 200 per cent was rather high.
In its reaction to the hike, the Insurance Consumers Association of Nigeria (INSCAN) advised the commission to reverse the directive.
In a letter to NAICOM signed by its National Coordinator, YemiSoladoye, the association stated thus, “We, the Insurance Consumers Association of Nigerian affiliate of the Federal Competition and Consumers Protection Commission of Nigeria, hereby write with respect to your Circular No.: NAICOM /DPR/CIR.46/2022 dated December 22,2022, increasing the Motor Third Party insurance Premium in Nigeria by 200-400 per cent for different categories of Motor Vehicles and by implication giving only one week notice to the insuring public of Nigeria to comply.”
The association then asked NAICOM to reverse the policy stating it amounted to a deliberate breach of the fundamental principle of the utmost good faith and other decent regulatory principles that guide insurance practice.
INSCAN added that the 20 million motor insurance consumers in Nigeria deserved more than one-week notice from the commission.
Similarly, Afenifere, the pan-Yoruba socio-political organization, asked NAICOM to rethink the decision to increase the third party motor insurance premium, saying that the rationale behind the hike “is difficult to fathom.”
In a statement signed by its National Publicity Secretary, MrJareAjayi, Afeniferesaid “Some agencies of this government seem to derive pleasure in inflicting pains on the people of Nigeria. The National Insurance Commission now came up with an unprecedented hike of over 200 per cent in the amount of money a person has to pay to get the minimum insurance cover.
“This was done at a time when another government agency, National Bureau of Statistics, NBS, described 63 per cent of Nigerians (i.e. 133 million) as suffering multi-dimensional poverty just as unemployment is at an all-time high. With cost of living so high, with personal income dwindling so much and with uncertainty so pervasive, why would it be now that NAICOM would raise the cost of insurance premium?”
But while admitting that there is not any particularly good time to raise a fee, insurance practitioners have been saying that the focus of most commentators on the premium increase has been the hike rather than the attendant benefits.
According to MrMuyiwaAwodire, a Regional Manager at Linkage Assurance Plc, the premium hike came after 19 years.
“The last time we had an increase in premium for third party motor insurance was in 2004. Now, if you consider the rate of inflation over the past 19 years, you will realise that the increase is long overdue,” Awodire said.
He added, “But beyond the hike, let us also consider the benefits. Until December 2022, the highest claim any one could make on third party motor insurance was N1 million because that was the limit. But that has changed now. A policy holder can make claim of up to N3million. We all know how expensive vehicles have become now. So, it is in the interest of policyholders that they embrace the increase. While it is true that no one prays for an accident, the indubitable fact is that accidents do happen. When they happen, the insurance companies are on hand to mitigate the loss. So, people should shift their focus from just the cost and consider the benefits. The benefits, in my opinion, outweigh the cost.”
Also speaking on the benefit of the premium increase, NAICOM’s Head of Corporate Communications and Market Development, MrRasaaq Salami, in an interview, noted that the ECOWAS Brown card had been captured in the new premium for third party motor insurance.
According to him, motorists driving within the West Africa sub-region would not need to get the ECOWAS Brown Card again once they had the third party insurance cover issued by Nigerian companies.
He stated that the brown card provides motorists complete guarantee for a prompt, fair and immediate compensation for any accident that may be caused by them outside their country of residence.
Similarly, the Nigeria Employers’ Consultative Association (NECA) has said that the premium increase would be beneficial to the economy.
In an interview, the Director General, Adewale-SmattOyerinde, said “In order to grow the economy, develop the industry and provide effective risk-mitigating services to the generality of Nigerians, it is our belief that a marginal adjustment in the current rate is desirable.”
While adding that it was important for NAICOM to carry all stakeholders along in the implementation of the new policy, NECA said given that the just changed rate had been operated for about 19 years while the cost of motor vehicles had increased exponentially, the rate adjustment was not out of order.
He added, “Coupled with the general price increase of goods and services, the commission can be justified if there are guarantees for improved service delivery and a higher response rate from insurance companies.”
The NECA boss urged NAICOM to deepen engagement with critical stakeholders to promote the insurance culture in Nigeria and also get buy-ins for its policy actions.
“In developed climes, the insurance industry plays a major role in National Development as it serves as risk off-takers in cases of accidents and other mishaps,” he said.
While reacting to the premium increase, Mr Chika Okechukwu, an Ibadan-based fabricator, said given the rate of inflation in the country and the way government agencies jack up their service charges, it was a surprise that NAICOM waited for 19 years to increase the premium.
“The concern of many is not the new rate; the issue really is, are insurance companies willing to pay claims? From experience, many third party policy holders don’t push for claims when accidents occur because of the difficulty in getting payment; it is only those with comprehensive policies that often insist on getting indemnified. So, for me, the adjusted rate is okay provided that insurance companies will be willing to pay claims promptly without subjecting the clients to any unnecessary hardship,” he said.
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