By Francis Ewherido
A circular dated December 22, 2022, from the National Insurance Commission (NAICOM) increased the premium and limit of liability of various classes of motor insurance. Private motor third property limit was increased from N1m to N3m; own goods limit was increased to N5m; staff bus was increased to N3m; trucks/general cartage; special types was increased to N20m; tricycle was increased to N2m and N1m for motorcycle. Ab initio, Motor (Third Party) Insurance is for the benefit of third parties. The Motor Vehicles (Third Party) Insurance Act of 1945, which took effect from 1st April 1950, makes it an offence for anybody to use a motor vehicle on the road (road here means any road to which members of the public have access) without having in place the minimum Motor (Third Party) Insurance to cover the motorist against liabilities arising from third party bodily injuries or death. The Insurance Act of 2003 extended the cover to take care of liabilities arising from damage to third party property to the tune of One Million Naira.
What NAICOM did was to increase third party property damage for all categories of vehicles. There was no uproar for motorcycles, tricycles and others. We all seem to have accepted the culture that when tricycles and motorcycles damage your vehicle or property, the riders prostrate before you to beg, you forgive them and life goes on. Sometimes, if the riders have numbers, they bully and can even beat up the innocent party. Some unlucky innocent parties have been lynched. No problem because we live in a jungle, abi?
The damage of third party property by private vehicle owners was increased from N1m to N3m with a corresponding increase in premium from N5,000 to N15,000. That is where the uproar is, but why? We have carefully ignored the commensurate benefits and focus only on the increase in premium. You can look at the issue from many dimensions. One, more private vehicle owners are affected by this increment. Two, the N5000 premium people used to pay was “chicken fee” to many to get motor insurance certificate and get “irritant” and “nosey” law enforcement agents off their backs. Now, N15,000 is no more “chicken fee.” Now you need to take your time to know the benefits or relief your N15,000 can provide for you: If you hit a third party and he is injured, your insurance company is liable to pay the cost of treatment. God forbid, if your vehicles kills a third party on the road, your insurance company is liable. In the case of injury, the hospital bill will provide a basis for compensation. If it is death, the family of the deceased will meet with the policyholder/his insurance company to agree on compensation. Where no agreement is reached, you go to court.
In the event of property damage, the limit is N3m. If the damage is beyond N3m, the insurance company will be liable to pay only N3m. The policyholder has to pay the balance from his pocket. Note that all non-life policies are subject to indemnity. In other words, the job of insurance companies is to put you in the financial position you were immediately before the incident, no more, no less. You are not supposed to make profit from a loss. For death or bodily injuries, they are not subject to indemnity because you cannot place a value on life, injuries or loss of limb. The remedies I highlighted earlier and others like the annual income of the deceased are what are applicable in determining compensation.
Some commentators have been accusing NAICOM of being insensitive to the plight of ordinary Nigerians. Are third parties who will benefit from these new rates not among ordinary Nigerians? Did NAICOM increase the rate without doing its homework? Is it not the same NAICOM that knows many insurance companies are making underwriting losses and rely on income from investments to stay afloat? Is it not the same NAICOM that has cancelled licenses of insurance companies due to inability pay claims and meet other obligations? Is it a crime that NAICOM wants appropriate pricing to enable insurance companies meet their claims and other obligations? The questions can go on and on, but let me leave it there.
At the risk of getting a backlash, I ask, there are over 200m Nigerians out of which less than N10m own cars. Are all car owners in Nigeria part of the “ordinary Nigerians?” At the minimum it takes roughly N10,000 to fuel your car and keep it on the road monthly, while the N15,000 new premium is the annual premium. Ten thousand naira a week times fifty two weeks a year comes to N520,000 to keep your car on the road per annum. Let us even assume you use it only half of the time; that is still N260,000, a far cry from the N15,000 premium per annum for third party premium. I personally feel the challenge people have with the hike in the rate of TP premium is the general lack of appreciation of insurance in Nigeria (insurance penetration in Nigeria is less than one percent) and lack of appreciation of the benefits of Motor TP Insurance. That is what I feel practitioners should deal with and how to build trust in Insurance, not arguments about appropriate pricing and other attempts to deodorize rate cutting. Let us be honest, what led to the demise of some insurance companies? Apart from lack of corporate governance and fiscal rascality by the board and management, a major factor responsible for inability to pay claims by insurance companies is the charging unsustainable premium rates. The primary task of insurance companies is to pay claims ALWAYS. To do that, you have to charge appropriate premium to enable companies have good pool of resources from which they can pay claims at ALL time. Or don’t you the insuring public want your motor TP claims paid without “grammar?”
One thing for sure about the new rates that potential policyholders will take more interest in the benefits of the third party insurance they are buying as highlighted above. Fifteen thousand naira, unlike N5,000, is not chicken fee. Policyholders will also take more interest in where they get their motor policies. Certainly, you won’t go under the bridge to get TP insurance with N15,000. Local government offices are also not licensed to issue insurance policies. If an insurance company gets a space in a local government office to issue motor policies, it is a different matter. The only companies licensed to sell motor insurance in Nigeria are underwriting companies and Registered Insurance Brokers (RIB). Their names are on the NAICOM website: https://www.naicom.gov.ng, Nigerian Council of Registered Insurance Brokers website https://ncrib.net and Nigeria Insurers Association website: https://nigeriainsurers.org. If you go to anywhere else, you risk buying a fake motor insurance policy and the implications are grave: in the event of an accident, you are on your own. You have to bear all the third party liabilities, in addition to own damage. In addition, if you are caught, you risk a fine of N250,000 or/and a year imprisonment for not having a genuine motor insurance before using your vehicle on a public road.
People saying that the hike in premium will force people to go for fake motor insurance certificates make me laugh. There is a platform called Nigerian Insurance Industry Database (NIID). Many police officers on the road have the app on their phones and can use your vehicle number or insurance certificate to check if your insurance is fake or genuine. If it is fake, you either pay N250,000 fine, or/and go to jail for a one year or the police will do what they like with you.
Francis Ewherido, an insurance executive, writes from Lagos.