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Finance | Insurance

Resolving the Debacle of Claims in Nigeria's Insurance Industry

Jun 02, 2022   •   by   •   Source: OpEd by Ekerete Ola Gam-Ikon   •   eye-icon 539 views

News of claims paid by insurance companies are dominating the media space again as their 2021 Financial Statements become available for public use. Despite the reported spending of billions of Naira by insurance companies, which have enabled businesses to remain open, retain employment levels and pay taxes to States and Federal Government during the past year, insurance is yet to earn its rightful place amongst economic stakeholders in Nigeria.

 

The discussions tend to continue with what insurance operators and regulators have not done notwithstanding the good strides that can be seen in terms of the unprecedented increase in Gross Written Premium, Total Claims Paid, Total Assets and Total Shareholders’ Funds  between 2020 and 2021.

 

Efforts made to ascertain the reasons for these trends of responses have revealed that: 

  1. Over 80 percent of the billions of Naira spent on claims payouts have gone to corporate organizations, which have also been responsible for over 80 percent of the premium received by insurance companies; 
  2. Individual policyholders have been most affected by the unpaid claims and they remain most vocal, especially on social media, regarding their positions; 
  3. Communication of claims payouts are not detailed in a manner that the public can easily understand and appreciate.

 

To ignore, deny or fail to explain the position these individual policyholders have been put by some insurance companies, remains the greatest risk the insurance industry in Nigeria currently faces.

 

At a time when insurance awareness has doubled up and more individuals have become more interested in getting insurance - travel, health, life, property - answering their questions would help them decide. However, to simple questions like "I hope you pay claims promptly without stressing your customers?" The same old answer of "Yes, you can ask in the market about our claims payment record" is what they receive, when indeed it should be more than that. With a demonstration of how technology has been adapted for the claims management process, the customers would be impressed beyond expectations. 

 

Providing new and timely responses to the issue of paid, delayed and unpaid claims have become necessary towards improving the insurance experiences of both the operators and policyholders.

 

 Stepping Back to Go Forward 

Firstly, the operators have the bigger role to play with regards to changing the claims experiences for their policyholders. Understandably, the probability of claims begins at the point of accepting the risk, placing the business and issuing policy documents without having sufficient and validated information about the prospects (individuals and organisations).

 

Respective insurance agents and marketing executives of insurance companies still go out daily with the sole purpose of making a sale. When they meet their prospects, they go straight into determining the value of the item or transaction to be insured, indicate the premium payable and share their company's account details for the premium payment to be made.

 

It is often after this that the customers are required to complete the Know Your Customer (KYC) Form, and the information provided there does not undergo any validation process.

 

The sale process, as described, is not only a soft route for fraudulent claims but also not in line with the format to accept risks and place businesses as stated in the Market Conduct Guidelines issued by NAICOM.

 

What happened to the Proposal Forms or Questionnaires that insurance companies used in obtaining personal details of individuals or organizations and their insurance experiences? The need to know if the individual or organization  has any other form of insurance besides the one currently discussed is essential for understanding the profile of the "new customer".

 

In this prevalent digital age, validation of the personal details of individuals or profiles of organizations have become critical for the completion of financial transactions, and insurance companies have to understand the impact of this on their overall businesses. Fake identities are still common and cannot be taken for granted.

 

Next, insurance companies that have Individual Life products that require customers to pay premium for years - 5, 10, 15 - should do more to protect such policyholders. To be awaiting payment two years after the maturity date and execution of discharge voucher for a 10-year policy is "criminal" and should not be tolerated for any reason.

 

Such insurance companies should deliberately build necessary reserves or compelled by the regulator, NAICOM, through quarterly monitoring and checks, to ensure they are in the position to meet their obligations as and when due.

 

Beyond this point, if the matter had become distressing as we had seen with the insurance companies expelled by the Nigeria Insurers Association (NIA) last year and of which two have been given Notice of Withdrawal of Licence by NAICOM this year, the regulator needed to test the aspect of the law that empowers it to take some part of an insurer's deposit with the Central Bank of Nigeria to settle these long outstanding unpaid claims.

 

NAICOM would only be fulfilling one of its principal mandates to protect the interests of policyholders.

 

 Redefining the Quality of Policyholders 

Listening to the narration of Policyholders who became "victims" of unpaid claims revealed that: i) Most of them did not really understand what they were buying but were succumbing to the pressure from family and friends (mostly insurance agents) to pay certain sums monthly for some insurance products especially savings by Life companies; ii) Most policyholders fail to monitor and check the status of their insurance policies, probably because of the relationship with the insurance executive, and even when there are reported challenges with their insurers, they become the last to hear; and iii) Most policyholders, especially individuals and small business owners, fail to see insurance as an instrument of financial planning and have poor knowledge of the value it offers for sustainable development.

 

The quality of policyholders have helped hasten the development and acceptance of insurance in other climes, and accordingly, created better environment for claims management. 

 

Most often, informed and knowledgeable customers (policyholders) will question the procedure certain insurance executives would want to follow to conclude sales.

 

By simply asking "Where is the questionnaire I am supposed to complete with my detailed personal data?" The insurance executive would immediately know that she is dealing with a thoroughbred customer and needs to respect all the steps in the sales process.

 

My question is: "Why don't we follow the steps?" And amongst some of the responses I have received, this one comes top "The customer will say they don't have time for that!" Really?

 

 Some Recommendations

So, my thoughts or recommendations for minimizing frictions in claims management, as we engage the digital era, are: i) Let insurance companies design and digitize their sales process in line with the Market Conduct Guidelines and put trained insurance agents behind the system to handle failures and complaints; ii) Establish the process for validation of the personal information and data of customers with identity issuers and if necessary, law enforcement agencies. The moral hazard of persons accepted as policyholders remain the fundamental issue in claims management; iii) Insurance companies should seek to share experiences of some claimants using the Frequently Asked Questions approach with a view to helping potential and existing policyholders appreciate the process of claims management. Understandably, no two claims are the same but, to the insuring public, it is important to understand why one claim was settled and the other not settled; and iv) Insurance companies should communicate records of claims paid in details based on sectors and geographical locations, on monthly or quarterly basis, which will make more sense to many discerning and interested members of the public.

 

As tough as it may seem, insurance companies have to automate and digitize their claims management process, preferably working with Insurtech start-ups, to enhance customers' experiences and be assured of improved sales results from qualitative customers.

 

Resolve the claims debacle and win more share of the economy.

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