Premium flight: Experts weigh in with capacity building, collaboration as panacea

By Cynthia Ezekwe.

Insurance experts have called on insurers to build capacity, and collaborate to address the high rate of premium leaving their markets to foreign  markets.

Annually, huge capital leaves the shores of the regional and sub-regional insurance market in Africa,  to overseas markets in  Europe and America through reinsurance, brokerage business, and underwriting of high-tech and huge ticket businesses due to lack of capacity, technical know-how, and lack of reasonable capital.

Prisca Soares, the former secretary general of the Africa Insurance Organisation (AIO),  recently confirmed that the African regional insurance market loses $6 to $8 billion annually to Western markets mainly through brokerage and reinsurance services.

Soares  said AIO arrived at the above figure based on a study on premium flight it conducted in 2016 and insisted that rather than abating, the situation has been worsening year- in -year out because of preference for foreign markets to local markets by the regional business operators.

Soares, who disclosed this during a panel session at a conference organised by the Nigerian Association of Insurance and Pension Editors (NAIPE), urged the government to ensure that  insurance is not wished away in signing contracts for foreign direct investment (FDI).

Industry reports have  shown that Africa’s insurance sector is often overlooked within the broader financial service markets, despite its long term development and financial potential to impact overall economic growth.

Consequent research in the Nigerian insurance sector have also indicated that premium flights have been concentrated in the oil and gas, and aviation sectors. The often adduced reason is that the capital of all the insurance companies in Nigeria put together cannot insure one oil rig of an oil company in Nigeria. On the other hand, airline operators have attributed the high insurance premium rate charged by Nigerian insurers for the premium flight in the sector.

In a chat with Business A.M., Ekerete Olawoye Gam-Ikon, a management consultant in insurance and entrepreneurship, said: “Understandably, in my view, insurance is a global business dominated by collaborations and risk sharing across economies and different entities need to have strategies to win more, one of them being capital. With more capital, they attract more shares of the risks and ultimately, premium.’’

He noted that insurers need to address the problem of premium flight by taking certain strategic steps, which includes increase in capital, technical capacity to handle certain risks and modernising reinsurance solutions to meet emerging needs.

Gam-Ikon  emphasised that capacity building as  critical, imploring insurance regulators and operators to open up to new knowledge that will enable them to build a sustainable future.

“To achieve these, we need regulatory actions and sanctions where necessary. Pending the passage of the bill, certain issues should be brought out to address urgent matters of low share of premium that we receive due to low capital allocated to special risks,’’ he noted.

The insurance expert suggested further that rather than the current regulatory guideline that requires special risks to be exhausted by all insurance companies before going aboard; a select number of strong insurance companies should be grouped together to provide the needed capital and continue on a deliberate plan to increase their capital and technical capacity.

Also speaking on how premium flight can be addressed, regional insurers at the recent West African Insurance Company Association (WAICA)’s education conference held in Lagos, pointed out that  cooperation and collaboration among the regional and sub regional insurers would go a long way to strengthen them for optimal performance.

Mohamed Adamu, chief finance officer Unique Insurance Company Limited, Accra-North Ghana, one of the participants at the WAICA event, noted that the sub-regional insurers needed collaboration to stand strong, adding that collaboration would  help them to underwrite big-ticket businesses, which are flown abroad.