Cynthia Ezekwe
When economic uncertainty and volatility become the new normal, having a plan in place to safeguard one’s financial future is essential. One way to do this is through insurance, as highlighted by experts at a recent webinar hosted by Coronation Insurance.
The webinar, titled “Winning through Insurance: Its Crucial Role in Ensuring Financial Stability,” explored the importance of insurance in achieving financial stability. The experts discussed the various types of insurance available, and the benefits of having the right coverage in place. They also highlighted the risks of going without insurance, such as financial instability, medical expenses, and legal liability.
Yinka Dawodu, assistant director of underwriting and marketing at Africa Re, the pan-African reinsurer, delivered the keynote address at the webinar. Dawodu emphasised the vital role of insurance in ensuring financial stability, both for individuals and businesses. He noted that insurance is a critical risk management tool, providing protection against unexpected events and allowing for more confident financial planning.
One of the key points Dawodu made was that insurance is multifaceted in its benefits, protecting individuals and businesses from financial hardship and providing peace of mind. He explained that insurance helps to mitigate risk and protect assets, allowing people to feel secure in their financial planning. Furthermore, he noted that insurance can have a significant positive impact on individuals’ and businesses’ overall quality of life, as it can reduce stress and anxiety related to financial uncertainty.
“Given the macro-economic situation, you have to protect your assets, as the loss could have a significant impact on your finances. If an organisation or an individual does not put in place proper risk management processes, it will have a significant impact on their financials,’’ he said.
Dawodu highlighted the following key roles that insurance plays in safeguarding financial stability:
Risk mitigation
Insurance cover is an effective risk management tool that helps both individuals and businesses mitigate the potential financial burden due to unexpected events such as fire, accidents, illnesses, natural disasters or theft.
Protection of assets
Insurance provides financial protection for valuable assets, such as homes, cars, businesses, and personal belongings. Insurance provides compensation in the event of damage or loss to insured property, hence recovery of the costs of repair, or replacement, thereby safeguarding the financial investment.
Comfort and peace of mind
Insurance cover provides individuals and corporate bodies some form of comfort and peace of mind, knowing that they are protected against fortuitous events insured against. This sense of security allows them to focus on their short and long-term financial goals, without the worry of potential financial burden or setbacks.
Legal compliance
Some types of insurance cover are compulsory, in order to comply with the legal requirements in every society. These include motor insurance, group life and workmen’s compensation insurance etc. By maintaining the required insurance coverage, individuals and businesses can avoid legal penalties and financial liabilities.
Financial security/planning
Insurance is one of the efficient tools for a comprehensive financial plan. By taking up insurance products such as life insurance, health insurance, and disability insurance, individuals can protect their financial future and provide for their loved ones in the event of unexpected situations.
Retirement planning
Retirement plans offer great features that secure beneficiaries, and offer them a steady flow of income in their non-working years. Individuals can purchase a retirement plan to save and earn high returns to support their expenses in retirement. They can also buy an annuity plan that provides a guaranteed income to help maintain their preferred lifestyle in retirement years.
Dawodu also emphasised the need to prioritise insurance as a tool for achieving financial stability amidst inflationary challenges in Nigeria.
Christopher Owuamanam, managing director and chief executive officer of Orient International Loss Adjusters Limited, noted that in an increasingly uncertain world, it is crucial to have an insurance plan tailored to one’s specific needs.
According to Owuamanam, a well-crafted insurance plan can give individuals and businesses the confidence to weather economic fluctuations and come out stronger. By protecting against the financial impact of unexpected events such as natural disasters, health emergencies, and market downturns, insurance can provide a critical safety net.
Additionally, Owuamanam stressed the importance of working with an experienced and reputable insurance provider to ensure that the coverage is tailored to the individual or business’s specific needs.
In light of the recent periods of high inflation, Oluwarotimi Adewole, managing director and chief executive officer of Sam-Vic Insurance Brokers Limited, noted that insurance is a business that is driven by liabilities, meaning that the commitments and guarantees provided by insurers shape their asset allocation and sensitivity to changes in inflation and interest rates.
“Since the latest inflationary period occurred, inflation rates have been well contained. As insurance is a liability driven business, the duration of the commitments and the guarantees/coverage offered shape the asset allocation of insurers and their sensitivity to changes in inflation and interest rates.
“Claims and expense inflation is correlated with the general inflation, but tends to exceed the consumer price inflation, particularly for certain key lines of non-life business. This has been confirmed by several studies showing that claims and expense inflation has significantly exceeded the general inflation for several years with a sharp increase observed in recent times,’’ Adewole explained.
Augustine Aniekwe, head of corporate underwriting at Coronation Insurance, said that the company provides an exceptional advisory service to ensure that clients maintain adequate coverage for the values of their property. Aniekwe explained that this proactive approach helps clients avoid the risk of underinsurance, and ensures that they receive the full value of their claims when the need arises.
According to Aniekwe, while claims and expense inflation are related to general inflation, there are also some important differences. He explained that it is essential to consider the characteristics of insurance-specific inflation in order to properly estimate the impact of claims and expense inflation.
Aniekwe defined claims inflation as the change in claims incurred due to inflation for a particular insurance portfolio over a given period, typically one year, noting that claims inflation is driven by the services involved in the settlement of potential insured claims. Expense inflation, on the other hand, refers to the change in expenses incurred by insurers due to inflation over a given period.
“Claims inflation is significantly affected by increases in, for example, the prices of materials or repair work, but also by wage increases, the costs of medical care due to medical advancements, which are particularly relevant for personal injuries, and changes in judicial decisions,’’ he noted.
In conclusion, the insurance experts called on insurance companies to do more to support their customers after the sale of policies, including providing clear and comprehensive information about the terms and conditions of their policies, and helping customers make informed decisions about their coverage. They noted that this approach would allow insurers to better meet the needs of their customers and enable them to truly reap the benefits of having insurance.
