Fola Daniel, the Commissioner for Insurance, National Insurance Commission (NAICOM), has emphasised the need for operators to ensure appropriate rating of insurance businesses.
Daniel said that pricing competition was gradually killing insurance companies.
According to him, some insurance companies discount insurance businesses to the tune that when a loss occurs they will be unable to settle the claim.
"Insurance is based on probability theory. Probability theory dwells on law of large numbers. The process of insurance is all the insuring public contributing a little money called premium into a basket from which liabilities are met.
"The biggest instrument for insurance companies is appropriate rating which means that those insuring must contribute an appropriate amount of premiums for it to be sufficient to meet losses as they occur. If we fail in this primary assignment then we have sown a seed of failure.
"The capacity of any insurance company to pay claims is significantly eroded if the company does not have enough premium collected upfront to pay the claims," he said.
According to Daniel, underwriting is fast disappearing, today there is price competition that is inimical to the growth of insurance business.
He said the insurance companies were no longer looking at what the risk is, they are asking what the premium is.
The commissioner said that no degree of prayer, "O God let there be no claims’’, would prevent loss from occurring after huge discounting of insurance businesses.
"Millions of vehicles will be on Nigerian roads every day, God is still on the throne, but there will still be an accident.
"When such loss occurs and the premium is not enough to settle the claim, the company will use the shareholders funds in paying.
"When the shareholders fund is not enough, the statutory deposit in the Central Bank will be utilised as it is still part of the shareholders money," he said.
Daniel said the unhealthy price competition called for shareholders of the various companies to take interest in what was happening in their respective companies.
NAICOM on July 3 met with Insurance shareholders to tell them to ensure that they find out the true position of their companies during Annual General Meetings.
Source BusinesDay
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