Inflation and the exchange rate: Insurance companies report rising costs

• Insurance companies report rising costs
• Why is there a rise in operational costs?

In the first nine months of 2022, the leading insurance providers in Nigeria paid out N94 billion in claims. This follows a period of high inflation in 2022 during which prices for goods and services increased nationwide.

When insurance companies fulfill their claims to clients for life and non-life-based products, inflation increases the risk of rising operational costs.

The top 5 insurance companies by net assets listed on the Nigerian stock exchange have evaluated insurance claims expenses. These companies are Coronation Insurance, NEM Insurance, AxaMansard, and Custodian Insurance.

In comparison to the same period in 2021, the five insurance companies sustained a total net claim of N94 billion in the first nine months of this year, a 40.7% increase.

In contrast, the five insurance companies reported N90.1 billion in total net claims for 2021. To gauge how effectively businesses control expenses, insurance claims are frequently compared to net premiums. The insurance companies reported a net premium income of N148.7 billion for the reviewed period, making claims as a proportion of net premium 60.5%. This contrasts with 62.9% over the same period in 2021.

This implies that despite the increased expense of paying claims obligations, insurance companies were still able to raise their net premium income. The increase in claims over the time period under consideration was considerably aided by Custodian Investments and Axa Mansard.

READ MORE: Top 5 Leading Insurance Companies in Nigeria By Market Cap

Custodian’s claims, which totaled roughly N28 billion, were the sole cause of the increase in total claims tallied for all the organizations under consideration. Both firms provided more than 91% of the observed rise in claims and more than 58% of the whole period’s claims.

Why is there a rise in operational costs?

Although the insurance companies did not precisely state what increased claims, multiple quotes from their report indicate that greater inflation and the exchange rate were important reasons.

The rising cost of goods and services, which has compelled insurance to pay more for underwriting assets, is largely to blame for the increase in claims. Axa Mansard in particular saw an increase in claims paid by several insurers due to rising medical insurance expenses.

Another factor that some insurers believe contributed to the greater claims paid was Nigeria’s rapidly declining exchange rate.

Claims paid by insurance companies span industries connected to health, life, and non-life.

For instance, NEM’s motor insurance segment was the source of the majority of its insurance claims. Out of a total of N4.8 billion in claims, it paid N3.69 billion. To its overall claims of roughly N26 billion, the Axa Mansard HMO company contributed about N22 billion.

Tope Adeniyi, CEO of Axa Mansard Health, offered some explanation. “The firm has continued to rise to the difficulties, even though the company’s half-year report indicates that claims have increased due to medical inflation and utilization. As we take the current economic climate into account when setting our premiums, we anticipate an adjustment from October through the end of the year.

Accordingly, the majority of AIICO’s insurance claims—about N31 billion out of a total of N32.9 billion in claims—came from its dominant life business.

Source: Nairametrics.com