Special Report: Assessing impacts of 3rd Party insurance rate hike on Nigerian motorists

*Motorists kick, as the Nigerian insurance industry regulator and stakeholders argue the introduction of new premium for auto insurance is a development that will aid better service and improvement of claim settlement for motor insurance policyholders in the country

Web Editor | ConsumerConnect

The latest increase of third party motor insurance policy by 200 percent by the National Insurance Commission (NAICOM), which is expected to fully take effect January 1, 2023, has its own implications

Referencing the Federal Roads Safety Corps (FRSC) Act, Leadership report notes that “any automobile on Nigerian roads must have at least third party motor insurance policy or comprehensive insurance coverage which goes for between five and 10 percent of the value of a vehicle.”

Vehicular movements 

Before now, 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.

However, the National Insurance Commission (NAICOM), recently increased third party rates by  200 percent which is expected to commence on the first day of the New Year.

Of 3rd Party Insurance

Whether motorists would be able to comply with the new rates when their third party vehicle insurance certificate expires and due for renewal, it’s only a matter of time, the report said.

The NAICOM move

Starting from 2023, motorists who want to renew their insurance certificate or procure a fresh one will have to pay N15,000 as the new premium.

Nevertheless, commercial vehicles will have to pay N20,000 as rate for third party vehicle insurance paper.

The new rates amount to about 200 percent increase from N5,000 that was earlier being charged.

NAICOM circular has attributed the new rates to hike in inflation rate, even though, the existing rate has been in use for about 19 years, according to report.

The circular titled: “The New Premium Rate for Motor Insurance” with reference number NAICOM/DPR/CIR/46/2022 signed by Mr. Leo Akah, Director, Policy and Regulations of the Commission, disclosed that, “in pursuant to its function of approving premium rate of insurance companies under Section 7 of NAICOM  Act 1997, and other extant laws, the Commission hereby issue this circular on the new motor insurance premium rate effective from January 1, 2023.

“The new motor insurance premium rate increase third party motor insurance to N15,000 for private, while commercial is N20,000.”

Akah stated “goods and staff buses are to pay N20,000 while truck pays N100,000 even as tricycle has been mandated to pay N5,000 and motorcycle goes for N3,000.”

Similarly, with the premium increase, the Third Party Property Damage (TPPD) has equally increased from the usual N1 million to N3million and above, depending on the classes of automobile.

The regulatory body said, the TPPD, which is the limit of claims an insured can enjoy on the policy, noted that, TPPD on private  vehicle is N3 million; Goods vehicle and staff bus go for N5 million, even as trucks/general cartage will now be assured at N3 million, adding that, special types is N5 million; tricycle N3 million and sum assured for motorcycle is N1milion.

Besides, NAICOM noted that comprehensive insurance motor insurance premium rate shall not be less than 5 per cent of the sum insured after all rebates/ discounts.

Stressing that failure to comply with the circular will invite the wrath of the commission, the Commission stated: “Failure to comply with this circular shall attract appropriate regulatory sanction.”

The new rate is expected to be effective by January 1, 2023.

Implications

Mr. Pius Apere, actuarial scientist and Managing Director, Achor Actuarial Services Limited, was quoted to have said the increase in third party motor insurance tariff to N15,000 from N5,000 is good for the industry, as the increase is long overdue but the full potential may not be achieved as there are implications and challenges to be dealt with.

Apere said through the new policy, Fake Motor insurance policies would be on the increase to avoid paying the full price.

He also noted the price increase from N5,000 to N15,000 might be regarded as too high by the insuring public for the some reasons.

According to the company executive, the reasons for the expected apathy can include, first that NAICOM would base its decision on the price increase on statistical analysis as the claim rate and the actual amounts paid by insurers under the period of analysis.

“Second, that the Insureds normally do not make claims on third party motor policies even if there is an accident involving third parties.

“In other words, it is a free money for insurers. “Moreover, basically, the insurers have been incurring underwriting costs and not claims expenses on third party motor policies.”

Believing the state or Federal Government motor licensing officials would still like to maintain the same proportion of income generated from third party motor registration where third party motor policy is part of motor registration package.

Apere stated if they were receiving N2,000, leaving N3,000 for insurers when the price was N5,000, then they would expect to receive at least N6,000 for the price being increased to N15,000.

Motorists to pay N15,000 3rd Party Motor Insurance from January 2023

“There will be an increase in the number of uninsured vehicles in the country because many motorists may not be able to afford to pay the new price having considered the economic conditions in the country, the report said.

Insuring public may consider the timing of the price increase to be inappropriate due to the economic hardship facing the citizens of the country.

The Managing Director further said: “Motorists would like to pass the increase to the passengers by increasing transport fares as a result of the new price on third party motor policy. Insurers would see the new price on third party motor insurance policy as a basis to review the prices of their non-compulsory insurance policies being designed by them e.g. Third party plus motor  insurance policy in the market.”

Meanwhile, Mr. Tunde Oguntade, Deputy President, Nigerian Council of Registered Insurance Brokers (NCRIB) has said the new premium and claims regime is one of the best things to have happened recently in the insurance industry as it would help address the soaring cost of repairing vehicles.

Oguntade implored motorists to consider the value created by the new regime, which moved claims limit from N1 million to N3 million for private third vehicles and N5 million for commercial.

The NCRIB Deputy President explained it had been difficult to repair most vehicles with N1 million, owing to the high cost of spare parts.

Similarly, Kehinde Jegede, National Vice-President, Association of Registered Insurance Agents of Nigeria (ARIAN), regards the introduction of new premium for auto insurance as a development that would aid better service and improvement of claim settlement for motor insurance policyholders.

He noted that, with the new rate and NAICOM’s monitoring, all the stakeholders shall have fair sharing.

Jegede stated: “Worth mentioned, to say this development shall bring about the industry contribution to Gross Domestic Product (GDP) in a positive way.”

He submitted that motorists with genuine policy shall have access to timely indemnity, as confident of the public on insurance will be reassured.

He also noted that the present premium regime, would give room for better service.

With the new introduction of premium rates and regulations, members of the public shall be better served, he said.

Motorists’ reactions to new premium hike regime

Mr. Afeez Ogunbo, a commercial bus driver between Lagos and Ogun states’ border towns, said he had never heard of the proposed increase, and that if it is true, he stated the government seems insensitive to the plight of Nigerian consumers.

Ogunbo said: “We are already being heavily taxed officially and unofficial by Federal, state and local governments parastatals, including agbero, and law enforcement agencies. So, adding N10,000 to it is insensitive to our pain.”

Speaking on the new insurance premium regime, Clement Prosper, also a motorist said what the underwriting firms needed to do was to educate Nigerians on insurance this festive period instead of the increase at a time the masses are struggling to feed themselves.

Prosper observed if at the prevailing N5,000 fee, Nigerians were cutting corners, how much more would it be in 2023 when they are being asked to pay more.

The motorist said Nigeria should prepare to witness a deluge of fake insurance certificates, which the regulator and players have over the years tried to address to attain increased revenue and a better deal for accident victims.

Though the review is long overdue, especially,  judging from the fact that the last review on third party motor insurance occurred 19 years ago, market observers believe NAICOM and insurance operators yet need a minimum of three to six months to really sensitise motorists on the new increase, instead of forcing it down the throat of the road users with little regard for their own planning and  predicament, report stated.

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