ot many Nigerians are aware that insurance operate a model of business that combines social welfare principles with strict business profit and loss features. Insurance claims may at times be honoured on the basis of emotions and empathy towards the insured who suffered a loss of assets. Many Nigerians have received payments from insurers not based on the strict conditions and terms of the policy but on the purely human basis that this claimant needed to be lifted and helped, even supplanting processes to ensure that the policyholder gets a benefit for, at least, taking insurance.
Although insurers are heavily taxed for things they ought not to pay considering the components and nature of their earnings, still they are able to enable discretionary obligations to their customers. Factually, if insurers were to investigate the actual causes of losses for which they pay billions annually, over 30% of such claims would not be paid on account of their not meeting the business conditions for underwriting. Yet they pay! They may contest claims only when there is an obvious attempt to defraud the underwriter. Insurance relies on the principle of the proximate cause of the incident and not the exact cause.
In very ideal cases, insurers and other suppliers of insurance products bond into a lasting relationship with the insured such that a mutual understanding exists which precludes any foul play between them. And this is the foundation upon which insurance thrives –– Trust and Utmost Good Faith. Perhaps, it is this part of the insurance principle that many would want to take advantage of and sometimes expect that insurance is provided for free. Insurance is also an intangible service where a physical product is not traded and the value is universally predetermined and bargained by both supplier and buyer. Thus, to connect people to insurance services, an ecosystem is developed where the purchase is system-driven. This is the system found in developed economies where insurance is ringed to economic and social activities. In Nigeria and most African countries, the value insurance creates is not well perceived by the larger population. And government regulations in this regard are mostly private-sector induced but only get a stamp of approval. African governments appear to distance themselves from the legislation which have their seal of approval.
Affordable Social Insurance
The majority of our population is unaware that claims can be made on victims of hit-and-run accidents and other third-party victims of road accidents. The legal system also is not robust enough to encourage lawyers to specialize in these cases due to funding issues to prosecute such cases.
Aside from the settlement of claims on regular insurance contracts based on the existing business relationship between the insurer and the policyholder and or other intermediaries, public insurance programs exist that provide financial protection against many kinds of economic risks. Disability, Income loss due to ill health, old age or unemployment are some forms of social insurance that provide insurance against economic risks. It may be provided publicly or through subsidizing of private insurance. Public auto insurance, health, unemployment and social security are social insurance programs. Mainly they target the underserved ad disadvantaged population.
The mandatory insurances are basically third-party liabilities which are subsidized with grants for insurance development. Even at the low price and subsidy level, there is no significant uptake of the motor third party, building under construction insurance, public building insurance, and health insurance.
The federal government legislated that these insurances listed are mandatory. Therefore, the premium pricing is subsidized so that it can be affordable. The private insurance entities participate because it is envisaged to be a pool of critical mass of the population with all concerned paying their fair share to provide protection for the greater part of the population. Due to the low awareness of the economic necessity of the programs and the government’s unwillingness to pursue vigorous enforcement, these essential programs have failed or partially succeeded in some instances.
Though insurance practitioners approach their customers with the utmost consideration, the balance sheet items that translate to profit and loss are part of the equation. The fact that most underwriters have not invested in mandatory social insurance programs is a function of price. The prices are not market-driven because they are regulated by the government. For instance at N5,000 third-party motor insurance with a limitless death claim, it will be suicidal for any insurer to invest in driving sales marketing without government support. After commissions, tax, levies and claims, it is not certain if any insurer can post a profit on Third party auto insurance on a standalone basis.
The first place to start is to review the prices upwards to enable active private insurance participation. Then the government should make a tangible subsidy input to make it sustainable. If the roads are well maintained and tolled, then a sizable amount for government support would be realized while the government pays its contribution to a dedicated pool for motor accident disability insurance.
A New CSR Window: How insurance can mobilize for social insurance
Motor insurance is the oldest compulsory insurance in Nigeria. If government strengthens its institutions, no vehicle can possibly be on the road without insurance. Generally, transport accident insurance itself is mandatory on account of the lives of passengers conveyed. For all types of compulsory insurance, the industry should go outside the domain and choose credible and influential people as committee members to oversee funds for the various mandatory insurance.
The insurance regulatory agency annually appropriates 20% of its income for the security and insurance development Funds while insurers are meant to keep a certain percentage levy on the gross motor income for defined compensation to victims of road accidents. For more efficient results, the security and insurance development fund may be further split into the types of mandatory insurance with the constitution of these committees for each. These compulsory insurance board memberships will become the pivot to drive the implementation of the programs. They would be composed of people whose statements are newsy and can achieve the highest impact in believability. Additional qualifications should be people whose statements can influence government action and policy implementation.
Out of these mandatory board committees, private insurers in partnership with the government can launch specific awareness campaigns on the various regulated insurance with an overall target on the direct beneficiaries. As a boost, every beneficiary of the security fund would be published to drive home the fact that real people are being impacted by insurance. The numbers and verifiable statistics are essential to achieve trust.
Motor Messages & Third Party Liability
A vital dataset missing in FRSC road transport accident reports is the number of insured vehicles that were involved in the incidents collated. The road safety commission is an important stakeholder that should be encouraged to deepen its reports. With such reports, digital auto platforms with integrated claims management systems can help identify insurers of the affected vehicles with the aim of initiating claims on behalf of victims’ families or injured passengers.
Road transport statistics obtained from the National Bureau of Statistics confirm this pattern of reporting by FRSC. A total number of 5,263 vehicles were involved in 3,282 road traffic accidents for Q2 2022. This number was further disaggregated to fatal, serious and minor accident categories. This report did not indicate if the vehicles were insured or not. The obligations of the FRSC to road accident victims in regard to insurance go further than the report indicates.
Zonal profiling shows that the highest number of fatal accidents happened in zones with the least insurance penetration with the exception of South West which came a distant second after North Central for the highest number of accidents. What this picture presents is a trend which should give the government an inkling of where the greatest attention is needed if accident insurance and motor insurance are to be enabled for the protection of citizens. Commercial vehicles record the highest number of accidents, which is a compelling reason to amend and enforce stricter social insurance programs.
Therefore, what should be mandatory alongside auto insurance is accident insurance. It is not sufficient to offer a third party with a focus on asset liability. Instead, the emphasis should be on death and injury to passengers. And pricing would then reflect this. The same should also apply to mandatory insurance.
For the kind of awareness that can stick, insurers in collaboration with National Insurance Commission can buy, and brand Federal Road Safety Corps vehicles on the highways and build presence and perception on the roads.
The branding will include a peculiar uniform for highway patrol teams. Alongside clear messaging on patrol vehicles, many people will see what benefits insurance brings. Emergency situations and the activity of special marshals will help create the impression that passersby and witnesses can spread with word of mouth.
Other Mandatory Insurances
Public buildings and Buildings under construction insurance are essentially third-party liability policies meant to compensate ordinary people. However, poor implementation and indifference by the government since 2003 have made it unworkable. The same subtle approach to sensitization may also be used here. Penalties for non-compliance should be a part requirement for approval by State and Federal governments. In addition, building associations, and institutes such Nigeria Institute of Building should only certify members who obtain annually renewable professional indemnity cover.