As the cost of claims in the event of an accident or loss of motor vehicles increases, insurance Companies engaged in auto business in the country have decried high rate of inflation.
Insurers says they are feeling the pinch of the upward trend as inflation has resulted into high cost of asset replacement due to the cost of auto parts.
According to them, premium rates are going down as most people are focusing on meeting basic needs like food, shelter, health and security and cutting allocation to insurance.
Motor Insurance is the second-largest source of premium for the general business segment of the insurance industry in Nigeria, after oil and gas risks.
Data from the Nigerian Insurance Association shows that 44 underwriting companies offering general business generated N44.91 billion premium in motor risks, out of which they paid out N38.16 billion on claim during the 2019 business year.
Responding to question on the impact of inflation on motor business, the Managing Director, Tangerine Insurance, Mayowa Adeduro said, ‘’ insurance underwriters are at the receiving end of inflation.’’
He said, ‘’ for underwriters, inflation is a destroyer of value. To the asset owners, insurance is a cost after other costs like food, shelter, school fees, security and others. Most assets owners will consider upward revaluation of assets as the last thing to do if they still have disposable income left after meeting basic and other needs.’’
‘’In the event of partial loss of assets like a motor vehicle, where the insured insists on replacement value, it is usually the amount plus inflation,’’ he said
He said, ‘’ the insurance company is disadvantaged in this instance since it cannot apply the condition of average on part replacement.
However, if the claim is a total loss or what we call constructive total loss, the insured will be at the receiving end since he cannot claim more than the value insured, except the insured has revalued the asset before the loss.’’
According to Adeduro, ‘’ another challenge is that during the period of inflation, rates go down in order to encourage people to renew their policies instead of dropping insurance altogether in order to meet other needs.’’
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