Insurers and Challenge of Emerging Underwriting Risks

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Ebere Nwoji writes on the need for Nigerian insurers to always be prepared in developing policies that will mitigate emerging risks

Recent social and environmental developments in Nigeria have spelt the need for Nigerian insurers to pay more attention to emerging risks that are staring on their faces daily.

This will reposition them to provide Nigerians with policies that will bring succor to them in the face of these new risks.

According to analysts, Nigerian insurers are expected to shift from their culture of scrambling for government business at all cost and begin to think bigger on how to harness opportunities existing in the emerging risks and at the same time save the Nigerian economy from huge losses emanating from these risks.

Emerging risks are newly developing or changing risks which are difficult to quantify and which may have a major impact on an organisation or an economy.

Insurers said emerging risks are driven by new economic, technological, socio-political and environmental developments as well as the growing interdependencies between them which can lead to an increasing accumulation of risks.

Presently in Nigeria, losses emanating from social vices like kidnapping, terrorism activities from the Boko Haram insurgents, Fulani herdsmen attacks both on farm crops and human lives as well as huge losses from climatic change factor like flood and latest risks from youth restiveness and cybercrimes, amount to huge loss of lives and property are categorised as emerging risks.

Some insurers believe they lack the capacity to play in this line of business while others regard the emerging risks as uninsurable.

Just last year, insurers were faced with claims from these emerging risks which were not covered by any policy in their portfolio.

Claims from such risks like the Covid-19 and risks from the #Endsars protest as well as killings and farm crop destructions by headsmen were presented to Nigerian insurers and the best they could do was to admit to pay only those that were insured with extensions, while insisting that any victim without extension over is on his own.

As correct as the insurers may be in their decision, apparently, this did not help in building a good image for the industry as the victims insisted that they bought insurance policies but the insurers denied them claims.

The claims from #Endsars protest damages in particular generated a kind of controversy between insurance brokers and insurance underwriters as while brokers insisted that underwriters should pay any victim with insurance cover as a way of advertising the industry and convincing Nigerians on realities of insurance, the underwriters refused.

However, since the launch of the regulator’s medium term plan for deepening insurance penetration in the country tagged, ‘Market Development and Restructuring Initiative’ (MDRI), operators are gradually changing their business approach.

Indeed, from their stereotyped business style of competing for government businesses like group life insurance, the insurers are becoming more versatile in looking inwards to the opportunities in other business lines like micro insurance.

By its nature, emerging risk is still new in Nigeria and is obviously not yet included in the profile of many insurance firms but the need for their inclusion is currently starring on the faces of insurers.

Risks from Environmental Changes

Scientists and environmental experts have warned against the negative effects of such climatic change like global warming on the environment. They called for action plans by governments, and risk prevention and mitigating experts and agencies to prevent and provide for the effects of climatic change .

A group of scientist called union of concerned scientists in their reports on the impact of human activities on the environment said: “Human beings and the natural world are on a collision course. Human activities inflict harsh and often irreversible damage on the environment and on critical resources.

“If not checked, many of our current practices put at serious risk the future that we wish for human society and the plant and animal kingdoms, and may so alter the living world that it will be unable to sustain life in the manner that we know.”

But for a developing country like Nigeria, despite the devastating effect of flood on many states, towns and communities, there is still the feeling among Nigerian insurers that natural disaster risk like flood is the exclusive of advanced and industralised countries like America, Australia and Japan who are known to have engaged in industrial activities that cause climatic change as a result of the ozone layer depletion.

With this feeling, both Nigerian government and the insurers remained passive to plans to mitigate losses from these emerging risks.

Shortly after the 2012 flood disaster in Nigeria, some insurers said they were making effort to package policy on flood but the experience of an insured whose property was damaged by flood in Agbo, Delta State, showed that Nigerian insurers including the leading firms have no cover for flood damages.

Going by Nigeria’s climate, after the current dry season, comes rainy season with its associated flood and Nigerians living in flood prone regions of the country are emotionally traumatised because of uncertainties about what this year’s rainy season will spell for them.

But if government and insurance operators can put up collaborative effort, such Nigerians will have less worry in the forthcoming rainy season.

Aside risks from environment in form of climatic change, the most challenging risks to insurers today is risks from social unrest and cybercrime The Managing Director Universal Insurance, Mr. Ben Ujoatuonu, speaking about emerging risk from this aspect said what happened during the #Endsars protest was just example of what the future will be in terms of emerging risks.

He said this is because Nigerians especially the youths are becoming aware of their rights and are bound to make their demands in this way.

He said the development remains a challenge to insurers to enter their policy statement designing room and come up with more emerging risks policy covers.

Former president of the Chartered Insurance Institute of Nigeria, Dr. Wole Adetimehin, said the industry needs intervention funds from government to enable operators accommodate such risks.

This according to him was to provide succor for the dependants of the victims of these emerging risks.

Speaking on this Adetimehin stated, “given that the magnitude of direct and consequential losses resulting from natural disaster like flood,terrorism, kidnapping and political risks could be extraordinarily huge, the effect of such losses are enough to destabilise the reserves of primary underwriters and their operational structures notwithstanding the level or amount of reinsurance back up especially at the early formative stage of underwriting these set of emerging risks.”

Suggesting way forward for the setting up of the intervention fund Adetimehin said “In setting up the intervention fund, the National insurance commission that is the advisory body to the federal government on insurance and also regulate the insurance industry has the wherewithal to advise the federal government on the size of fund required ,the custodian of such fund and its administration including all other logistics.

“It should also be made clear that insurance claim and losses are not paid from the capital base of insurance firms but from the reserves from operations set aside to pay claims” he stated.

The former CIIN president said the dangerous nature of such risks makes the setting up of the intervention fund much needed, adding that insurers are making efforts to ensure effective coverage of these risks
Also Managing Director of Riskguard Africa Limited, Chief Yemi Soladoye, while speaking on the need for Nigerian insurers to expand their coast in underwriting business said, “the era of traditional insurance products would soon give way for specialised products being developed by underwriters to meet the needs of the insuring public.”

For emerging risk like terrorism, Nigerian insurers should study the steps taken by their counterparts in experienced country like America in order to get it right.

Reports from American terrorism insurance underwriters stated that the September 11, 2001, terrorist attacks created a severe market shortage for terrorism insurance.

As a result, the US Congress passed the Terrorism Risk Insurance Act, which created a federal “backstop” for insurance claims related to terrorism events in the US.

The Act became law on November 26, 2002, and has since been extended and modified twice: in December 2005 and again in December 2007, when it was renamed the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA).
It stated that under TRIA, insurers must make terrorism insurance coverage available to their policyholders when offering to underwrite an accompanying line of business.

Since the Nigerian insurance regulatory body National Insurance Commission (NAICOM) some years back, signed technical agreement with its US counterpart, it is expected that NAICOM would borrow a leaf from the guidelines on underwriting of emerging risk like terrorism which the American regulator has put in place and do the same in Nigeria so that underwriters venturing into the specialised business will be more focused and do the business in a way that will benefit both the industry and the insuring public.

The Chairman Nigeria Insurers Association(NIA), Mr Ganiyu Musa, said following the significant impact, in terms of loss of property and other dislocations that followed the #Endsars protest, insurance became the centre of everything.

“Of course, a number of our members have been receiving notification of claims both with respect to the damage to property and ancillary losses as a result of the losses.

“Clearly, insurance was built for times like these. That is essentially why people take insurance.”

However, Managing Director/Chief Executive Officer, FBNInsurance, while responding to THISDAY’s enquiry, said: “We are purely business operators and can only pay claims purely on business ground.

“Insurers can only pay claims to those whose policy purchase covered the cause of the damage through extension.”

He said anybody who did not buy the extension policy would have to wait for the government’s support.

He urged the government to come to the aid of those whose businesses were damaged in order to sustain livelihoods and jobs.

These point to the need for insurers to be more realistic in claims payment so that Nigerians would be encouraged to take insurance cover for their lives and properties and for government to encourage the people to take insurance instead of extending just paltry help that will contribute little or nothing to the people’s lives when these emerging risks occur.