Contrary to expectations that rising claims settlements as a result of increased theft of luxury vehicles may force an upward review of motor insurance rates, the insurance companies are charging lower rates.Our correspondent gathered that unhealthy competition was forcing the insurance companies to charge ridiculously low rates on motor policies, thereby affecting the profitability of the business.By the Insurance Act, the companies are to charge 10 per cent of the value of the vehicle for comprehensive cover, but for years, many of the companies have been charging between five per cent and one per cent.Investigation revealed that some companies underwriting corporate businesses were charging as low as N50,000 to insure brand new vehicles worth N5m instead of the N500,000 they ought to charge. This translates to just one per cent of the value of the vehicles.Amazingly, such companies have been paying claims when the odds are not in their favour, forcing experts to warn that if the situation persists, the underwriters may not be able to make profits to sustain the business in the long run.THE PUNCHhad exclusively reported two weeks ago that the increasing wave of car snatching in the country had thrown insurance companies into panic, even as the bandits appetite for Toyota and Honda automobiles continued to grow.Insurers, who spoke to our correspondent on the matter, expressed concerns over the negative impact that the robbers preference for the two brands were having on their claims portfolio, with Lagos State recording the highest number of car thefts in the country.Some of the operators, who spoke with our correspondent, said the bad state of Nigerian roads, rising theft of some brands of cars and recklessness on the part of drivers, were forcing the insurance companies to pay heavy claims on motor insurance policies.This development, according to them, is having negative effect on the operations of the firms.It was gathered that motor insurance accounted for about 43 per cent of the total claims under the six major portfolios in the general insurance business last year.Although the Nigerian Insurers Association has no record of claims for the entire industry for the year, figures obtained from 11 insurance companies showed that N3.2bn was paid on motor insurance policies in 2010 out of the N7.5bn overall claims portfolio for the period.The President, Chartered Insurance Institute of Nigeria, Dr. Wole Adetimehin, said whenever claims rose, the underwriters were supposed to increase their premium rates, but instead, the premium rates had been falling in the country.He noted that the trend of rising claims and falling premium could make a company to continue to record underwriting losses, especially when more premium was not being earned.Adetimehin said, Ideally, what underwriters should have done is to review the rate upwards because in insurance, we have what we call claims experience. It may not be enough to use one year experience to conclude that the experience of a particular class of insurance is not good.If it is over a period of about three years, you dont have to wait before you adjust rates charged on the policy.According to him, if the claims paid in a particular year is high during renewal of policy the following year, equity demands that the price should be adjusted.Unfortunately, he added, the insurance companies that should be proposing an increase in premium rates did not have the courage to do so because if they refused to insure the asset, another company would.
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