Only 2.5m Motorists Captured as Insurers Plan N7,500 for Third-Party

Eighteen years after the initial review of third-party insurance to N5,000, motorists in the country may have to gear up for another review, The Guardian has gathered. An inside source said the premium may rise to N7,500 before the end of the first quarter of this year, owing to rising costs of vehicle repairs.

The insurance industry had earlier embarked on the process of reviewing the third-party motor insurance rate, following an uptick in inflation and an increase in the rate of asset replacement or repair, thus, putting the insurance firms at a loss anytime major claims come from any class of motor insurance.

The process of review started last year and it is expected to be concluded before the end of the current quarter.

While this is good news for the insurance sector, market observers said the rate increment could make road users abandon genuine policy for fake insurance papers.

The National Insurance Commission (NAICOM) had in 2004, approved the move by operators across the country to raise insurance premiums for third party motor insurance. The rate was raised to N5,000, up from N1,000, in a 400 per cent increase at the time.

Interestingly, the country’s inflation rate at the time was 15 per cent. 18 years after, the inflation rate as of December 2021 stood at 15.63 per cent. However, the country’s weakened currency has made it more expensive to import vehicles and spare parts.

Going by other African countries’ premium rates on third party motor insurance for private cars, Kenya pays Ksh 7,574 ($66.69), Ghana pays 327 Cedis ($52.16), while Zimbabwe pays ZWL 3123.90. Nigeria pays about $12 (at $1:N411). Unlike other countries, market penetration equally remains very low in Nigeria.

Ever since the post-pandemic market rebound, the automotive supply chain has become costlier, leading to a higher cost of parts replacement and maintenance.

With a spike in inflation, The Guardian had earlier reported motorists’ concerns about vehicle maintenance, either at the services/lubricants centre or at the mechanic’s workshop.

Also, as the used car market gets even more competitive, the demand for vehicle repair is also going up, as consumers want to hold onto vehicles longer, unable to find replacements within their price point.

Private car owners, who spoke to The Guardian on the new development, said the review of the Third-Party Motor Insurance is not humane at this time, coupled with the prevailing economic challenges in the country.

They said, with the penetration level of 0.4 per cent to the Gross Domestic Product (GDP), there is a need for the industry to build public trust by promptly paying claims to policyholders when the need arises.

They stated that what the sector needs to do at the moment is to collaborate with relevant security agencies to guarantee effective and efficient monitoring of compliance among Nigerians.

The industry survey by The Guardian revealed that only about 2.53 million out of the 12 million registered vehicles plying Nigerian roads have genuine motor insurance, leaving about 9.5 million uninsured.

However, industry operators note that the majority of the 9.5 million vehicles that are not insured use fake motor insurance papers, while the others do not have certificates at all, even though the Federal Roads Safety Corps Act requires that every automobile on the road must have, at least, a third-party motor insurance policy.

The Nigerian Insurers Association (NIA) also confirmed that only about three million vehicles out of 13 million on Nigerian roads are insured, indicating that about 77 per cent are uninsured. NIA also lamented that the sector can generate over N50 billion premium income annually if all vehicles have genuine insurance.

Accordingly, NIA said it is collaborating with Lagos, Kaduna, Niger, Kogi, and Ogun state governments on enforcement of motor insurance through their licensing offices.

Chairman of NIA, Mr. Ganiyu Musa, said the industry is embittered about what it is losing to insurance racketeers and non-insurance of vehicles.

Musa said: “We are working closely with the state vehicle inspection service on enforcement of Third Party Motor Insurance in the states.

“Out of the estimated 13 million vehicles in Nigeria, only about 2,939,767 Third Party Motor policies are in force as of April 2021,” he noted.

Musa, who is also the Group Managing Director/CEO of Cornerstone Insurance Plc, disclosed that the Association is partnering the Federal Roads Safety Corps (FRSC) and the police to give them access to the Nigerian Insurance Industry Portal (NIIP), such that when a vehicle is apprehended, they can ascertain if such vehicle carries fake or genuine insurance certificate.

The third-party vehicle insurance comes at a fixed price of N5,000 for privately used saloons and SUVs, while commercially-used vehicles are charged N7,500.

Some of the commercial bus drivers, who also spoke on the development, expressed concerns that for the industry to increase premium of third party insurance at this time, insurance operators may see an upward trend in the number of defaults and fake certificates.

The Guardian investigation revealed that some commercial bus drivers prefer to bribe their way out with law enforcement agents whenever they are arrested for lacking relevant documents.

To ensure the market embraces the new premium rate in the industry, the Nigerian Insurers Association (NIA) with the National Insurance Commission (NAICOM), has given a tacit nod to the planned review of third-party motor insurance policy to make it more effective.

Vice-chairperson of the NIA Committee on Publicity, Mrs Ebelechukwu Nwachukwu, noted that both operators and professional bodies are deliberating with the NIA technical committee and NAICOM to decide the adequacy of the N5,000 premium third-party motor insurance policy.

Nwachukwu, who is also the Managing Director of NSIA Insurance Ltd, while commenting on the next line of action on the issue, said: “The committee has received the permission of NAICOM to review and determine the adequacy of the current premium for the third-party motor insurance policy.

“When you have a third-party policy, it is necessary that you revisit it from time to time, so the technical and actuarial professionals will start working on that.”

On the inclusion of the Economic Community of West African States (ECOWAS) into the new plan, Nwachukwu noted that insurers met with ECOWAS representatives to examine how to process, issue and ensure the use of a brown card with motor insurance in Nigeria.

She hinted that the insurers’ committee also agreed to scale up the ECOWAS Brown Card by going into automatic issuance in Nigeria.

“Issues around enforcement of the Brown Card and claims that have accrued to people who have it were also discussed extensively,” she said.

Beyond the review, Nwachukwu said the committee had an interaction with representatives from ECOWAS on how it will work in the Nigerian market to highlight some key buckets of risks that would be used to measure insurance firms when it visits for the Risk-Based Supervision (RBS).

She listed the risks as Credit, liquidity, market, insurance, operational, legal regulatory, compliance and strategic risks.

The Commissioner for Insurance, Sunday Thomas, following reactivation of the Insurers Committee, had directed it to determine the adequacy of the current premium for the third-party motor insurance policy.

When contacted, operators were silent on the increment, noting that an industry-wide decision and position will be made known soon.

Stakeholders in the insurance industry had earlier in December disclosed that the Third Party Motor Insurance policy would be reviewed in January, barring a last-minute shift in policy, after the tacit nod given by NIA and NAICOM.

They said the committee, headed by Nwachukwu, working on the review had concluded and submitted its report to the regulator in November, with the expectation that by January 1, 2022, the regulator would have announced the new price.

Recall that in July 2021, NAICOM and insurance operators decided to review upward the current insurance premium paid by motorists to obtain compulsory third party insurance after a stakeholder meeting in Lagos, the first after the COVID-19 lockdown.