By Ebere Nwoji
The current financial crisis plaguing businesses in Nigeria especially forex scarcity, is hitting insurance operators harder, as operators said it has been pretty difficult to pay reinsurance premium to their oversea reinsurers to whom they cede substantial part of big businesses like oil and gas, aviation insurances.
In the face of the problem, many companies have not been able to cede reinsurance premium to overseas reinsurers who underwrite larger chunk of their businesses, while smaller portion is insured in Nigeria due to capacity problem.
The insurers said this is dangerous for them and for the economy at large likening the situation to someone sitting on a keg of gun powder that can explode any time.
Speaking on the impact of the current economic quagmire on the insurance sector at a press briefing organised in Lagos, Deputy President of the Chartered Insurance Institute of Nigeria, and a former Managing Director of the hitherto federal government owned Nicon Insurance Corporation, Mrs. Funmi Babington – Ashaye, said: “When you talk of large risk, i.e, oil and gas, aviation, very small proportion are being kept in this market and close to about 80per cent to 90per cent are being ceded abroad and if there is no foreign exchange in the country for them to cede, you can imagine what they are sitting on. They are actually sitting on a keg of gun powder that can explode anytime.”
This, she added was because without adequate overseas reinsurance cover, in case of risk on these businesses, payment of claims on such risks would be difficult since there was no reinsurance backing.
She however, said with the recently introduced flexible exchange rate, there is hope that forex will be available at any time to any company, and individuals at a rate that is determined by demand and supply.
“I think that should be able to resolve that, because a lot of premiums are in the country, such as airlines that couldn’t take out their income to their foreign countries. In addition, claims are also mounting. Inflation, by the time you adjust it and you know by the time you want to pay claims, you have to pay it based on the adjusted figure and the prices have gone up and apart from that, a lot of big claims are coming in. But I am very confident that once economy improves, of course, it will also dovetail to all sector of the economy, inclusive of insurance industry,” she said.
Speaking on the impact of the economic crunch on general insurance business, Babington-Ashaye, said it is very clear that inflation is very high and the country is actually on the brink of recession.
She said this has affected insurance operators more because it’s only when you have a lot of money to spend that you remember insurance.
According to her, even for corporate organisations, they have a lot of issues regarding their bottom line.
“Prices have gone up and you see some of them that were insuring comprehensively in the past, have started insuring third party, even individual not renewing at all. You can imagine the negative impact on the bottom line of insurance firms, she explained.
On the way forward for the sector in the face of federal government’s new forex policy, she said: “There is going to be forex, it’s going to be accessible, foreign investors have seen policy direction in the country now and most of them will come into the country, once they come back into the country, there would be a lot of forex and people would be able to do their businesses as it used to be in the past.”
She added: “You know this is just a recent development, whether the rate of exchange is going to be very high, although, a school of thought said, once you have a lot of money. Yes, you have a lot of demand, but more supply will crash the price.”