The local insurance market has effectively built a hedge round domestic risks that insulate them from the rate hardening that risks placed in the international market have been subjected to. While the risks that go beyond the shores of the local market are subject to price rises, the local market only risks prices are on spiral down.
Swiss Re recent report state that there will be continued rate hardening for insurance and reinsurance right the way through 2022. The report was firm in its assertion that the market conditions indicate price rises are likely to continue both this year and next . Its also definite that rate increase in 2022 would further increase the profitability of new businesses.
The managing director, Law Union and Rock Insurance, Mr. Ademayowa Adeduro, in an interview with Businesspost.com.ng said despite the international nature of insurance business, the domesticated risks are off the hook of the rate hardening in the international market.
However, for risks that are ceded to developed insurance markets, the prices are determined by the foreign reinsurers. The clients Adeduro said, will have to pay rates influenced by international market.
But its a different ball game for some local risks like motor insurance where “we’ve seen rates coming down.” He said this prevails because the motor insurance buyers are not ready to match the high cost of the cars with adequate price for cover. The dip in motor insurance price he noted, is not same with life assurance and personal lines where the rates are still the same.
Adeduro said what insurers do is to advise the insured to consider the rate of inflation in the economy, the exchange rate which continues to reduce the value of the local currency and act accordingly by increasing the insured value. He said if the insured underinsures he will be penalised by the law of average condition in policies which demands that if the risk is underinsured, the claim will be prorated along that line, and this he said makes sense.
He said the international practice of insurance makes it advisable for risks to reflect the current cost of replacement at the time of insurance purchase whether it is for motor insurance or building or any valuable that is insured.