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Making Claims Payment the Basis Of Performance Measurement In The Insurance Sector

Insurance	1628 VIEWS
Insurance
1628 VIEWS

Monday, October 7, 2019 / 01:45PM / By Ekerete Ola Gam-Ikon* / Header Image Credit: eCabrella.com

Early adopters of insurance, centuries ago, will marvel at how it has evolved to losing its true purpose and strength in comparison with other solutions to risks that are beyond our control. Notwithstanding some negative efforts to make insurance look unhelpful to persons, businesses and government, it remains the greatest discovery of humans to solve the problem of uncertainty!

Uncertainty has heightened in our world both in terms of size and cost, so has the business of insurance also assumed significant dimension especially within the last two decades. The global insurance industry has become a four-trillion dollar play despite settling claims for victims of tsunamis, hurricanes, terrorism and financial failures. Seemingly, the insurance industry has been made stronger by the claims settled.

In this period, there has been deliberate shifts of attention to the areas where these claims occurred and were settled. So, you now understand why the Asian insurance industry is growing while others especially in Africa are groaning. Their uncertainties have grown and so have their needs for insurance in similar proportion.

Unfortunately, despite what the insurance industry in Nigeria has doled out as claims settlement over the years, it still amounts to little as compared to the impression of the public towards insurance, no thanks to the regulator, National Insurance Commission (NAICOM), which is saying nothing in this regard.

The uncertainties in Nigeria are "double-trouble" as policyholders now have to face the uncertainties of when their claims will be settled coupled with the general uncertainty we all face.

Turning Claims To Gains

As a market entry strategy, many Nigerian insurers have been known to have used prompt claims payment to win big accounts of organizations and hearts of many individuals.

So, it is well known and not strange. The question is: Why is the same instrument - claims, not seriously considered as a strategy for market growth? Or if one will readily respond in the affirmative, why then do we have unsettled claims waiting for months and years? And they are many of them!

Industry reports of the last two years on the insurance industry in Nigeria show that there has been an upsurge in the number of policyholders lodging claims while settlements have increased marginally thus affecting the profitability of insurers.

To change the story of the industry towards and beyond 2020 and have insurers begin to gain, the following steps are required:

1. Change the Performance Metrics

Like other businesses, the performance of insurance companies are measured by their topline and bottom-line but they have continuously scored below par, viewed from the industry's contribution to Nigeria's GDP and returns to shareholders. Coupled with this, the primary purpose of putting policyholders back to the position they were before claims occurred have been eroding quite fast.

Industry analysts have reached a consensus that tackling and resolving unsettled claims, then having a system that effectively ensures prompt claims settlement to win the confidence of the insuring public is the sure way for the turnaround of the insurance industry in Nigeria. Such position must be followed by a strategic action like adopting claims settlement status as a measure of the performance of insurance companies!

It is unthinkable, in my view, for any insurance company to have unsettled claims for over a year yet receive regulatory approval for its financial statements. More so, the quoted ones even announce quarterly and half yearly results, sometimes posting profits, without regards to the long outstanding claims of their policyholders.

The common reason adduced for such situation is DOCUMENTATION! Often, this is attributed to failure of policyholders to submit complete documents, awaiting reports of loss adjusters or such other issues. My concern however is that this may become like the cases of unclaimed dividends.

Meanwhile, examine the following info extracted from the published 2018 financial statements of some insurance companies to appreciate the magnitude of this silent cancer that eats up and may consume the insurance industry going through recapitalization:

No	Insurer	Category	Net Claims Expenses 2018	Outstanding Claims over 365 Days as at 2018
1.	African Alliance Insurance Plc	Life	9,669,652	859,302
2.	AIICO Insurance Plc	Composite	23,869,154	2,120,380
3.	AXA Mansard Insurance Plc	Composite	12,130,577	5,404,670
4.	Cornerstone Insurance Plc	Composite	2,436,237	2,623,216
5.	Leadway Assurance Co. Ltd.	Composite	34,411,752	26,625,213
6.	Linkage Assurance Plc	General	2,711,208	422,576
7.	Mutual Benefits Assurance Plc	Composite	6,976,613	Nil
8.	NEM Insurance Plc	General	2,554,253	289,331
9.	Sovereign Trust Insurance Plc	General	1,787,492	241,486
10.	Veritas Kapital Assurance Plc	General	1,098,936	735,637

**All figures are in Thousands of NAIRA

Today, it has become arguably difficult to declare the most outstanding insurer in Nigeria in terms of claims settlement. Is it that no insurer seeks to get more businesses using the strategy of prompt payment of claims?

2. Compel adoption of technology

More technology is being adopted to enable businesses that deliberately seek growth achieve desired results.

If we agree that prompt claims settlement can stimulate more purchases of insurance contracts, then we should have the industry embark on getting the right tech solution to manage and settle claims. Such solutions already exist and it would make greater sense for the body of insurance CEOs to rather invest in this than the "buy insurance" campaign.

Simple processes that allows policyholders to KNOW the status of their claims without waiting for those nauseating calls and enquiries when a claim occurs would be necessary.

Genuine claimants should not be allowed to suffer unduly because an insurer had previously dealt with a fake claimant.

The story of a gentleman who had been paying his premium for a life policy over 14 years that has now been waiting for 11 months to receive his surrender value from an insurance company that once dominated the industry is amongst several sad tales we have today! This company's performance can only be described as woeful and shameful.

Who Will Do What?

Firstly, from the point of the law, the Federal Government through the Federal Ministry of Finance and NAICOM will have to understand the negative impact of unsettled claims on its fight against corruption and insecurity. They should exercise the powers that Sections 70 and 78 of the Insurance Act 2003 provide to address the issues of unsettled claims

Secondly, the body of professional insurance brokers, NCRIB needs to apply their influence to coerce insurers to settle the claims of their clients. Quite sadly, insurance brokers have been known to lose clients including Federal Government agencies on account of outstanding claims.

Thirdly, shareholders of insurance companies must understand the implications of bearing long outstanding claims on account of incomplete documentation in the books. As most insurers are pursuing recapitalization, investors will certainly consider outstanding claims of over 365 days and this might be a deal breaker in some circumstances.

Fourthly, the Nigerian Insurers Association (NIA) needs to unpack and repack itself. Sitting through monthly meetings with members who have operated like fake insurers should be embarrassingly burdensome.

The good news though is that there are solutions even within Nigeria, especially amongst tech solution firms that the insurance industry can rely on and they must take appropriate steps to save themselves.

I know there are individuals and organizations WILLING and READY to work with the insurance industry to change the narrative and only hope that the leadership can release themselves from the fear of failure and open up to those who have the innovative skills to put insurance in Nigeria on the path of transformation.

Let the basis of measuring performance be claims settlement and watch the industry become attractive again in all ramifications.

* About The Author

Ekerete Olawoye Gam-Ikon, MNIM, CPP is a management consultant with specialization in Strategy and Insurance. He can be reached vide telephone on +234-806-648-1111 and +234-802-585-0344 or by e-mail vide olagamola@gmail.com