The Challenge of Claims from Emerging Risks

Losses from disasters as a result of climatic change, civil unrest, cyber crimes among others, which sum up what insurers tagged, “emerging risks,” is fast becoming the key source of huge claims for Nigerian insurers and their global market counterparts. Ebere Nwoji in this report looks at the preparedness of Nigerian insurers to face the new challenge.

Recent report by a renowned global insurance broker, Aon, that losses from emerging risks in form of natural disasters, catastrophes and civil unrests, in the first half of 2021, cost global insurers $42 billion and that natural disasters losses alone cost the global economy a whooping $93 billion, is a food for thought for Nigerian insurers on the challenges currently posed to them by these emerging risks. Available evidence indicates that Nigerian insurers are not yet well prepared for these emerging risks.

Similar report by the Allianz Global & Specialty (AGCS), in its 2021 Risk Barometer noted that significant increase in the number of riots, demonstrations and vandalism have made civil unrest the main political risk exposure for companies as well as key source of claims for insurance firms, which is also another lesson for the insurers.

AGCS, a leading global corporate insurance carrier and a key business unit of Allianz Group, in the report, cited country by country instances of civil unrest with attendant damages to businesses, with particular reference to Nigeria, saying that violence that trailed the #EndSARS demonstrations in Nigeria, student protests in South Africa or clashes in Ethiopia with their damages, disturbances and ultimately, losses from riots, protests, vandalism or other forms of civil unrest were among the main political risk exposure for companies.

It further said the impact of the Covid-19 pandemic did not leave businesses and insurers with little damages and claims.

These risks highlighted by these reports constitute the emerging risks and is currently a big challenge to Nigerian insurers.

Risk analysts defined emerging risks as newly developing or changing risks, which are difficult to quantify and which may have a major impact on an organisation or an economy.

Insurers said emerging risks are driven by new economic, technological, socio-political and environmental developments as well as the growing interdependencies between them, which can lead to an increasing accumulation of risk.

Threats from Emerging Risk

THISDAY observed that in Nigeria, precisely, in the past 10 to 12 years, various social and environmental developments, namely the advent of terrorism group in form of Boko Haram and their activities, the 2012 flood which menace still leaves many Nigerians homeless, the social and political unrest in form of EndSARS protests, activities of separatist groups and their supporters in the South East and South West, coupled with insurgency in the South South part of the country have culminated in huge damages and losses that at the end of the day fall back on insurers for those businesses that have insurance cover.

For those that have no insurance cover, the development is causing government a lot in maintenance of various centers called internally displaced persons camps (IDPs).

Industry observers said these have spelt the need for Nigerian insurers in addition to consolidating on conventional risks they are familiar with also pay more attention to designing core products that would address the needs of victims of these emerging risks.

According to them, in the face of these developments, Nigerian insurers are expected to shift from their culture of racing for government business and those of corporate organisations at all cost to think bigger on how to harness the opportunities existing in these emerging risks and at the same time save Nigerian economy from huge losses emanating from the risks.

According to industry observers, insurers current stance on relying on extension covers to address claims from these new risks will do more harm than good to the already dented image of the insurance sector, as the insured, when a client is denied of claim on a particular policy he bought because of non purchase of extension cover. He will draw his conclusion that the insurance firm in question has defrauded him and denied him claim.

ENDSARS Protest Risks

An instance is claim from damages caused by disrupters of EndSARS protest in which the insurers said they will only pay claims to victims who bought extension to the main policy cover they paid for.

The Managing Director/Chief Executive Officer, FBN Insurance, Mr. Val Ojumah, in a telephone response to THISDAY’s enquiries said, “We are purely business operators and can only pay claims purely on business ground.

Insurers can only pay claims to those whose policy purchase covered the cause of the damage through extension.”

He said anybody who did not buy the extension policy would have to wait for the government’s support.

On the capacity of insurers to pay the huge claims from the civil unrest, Ojumah said, “Any insurance underwriter who issues a policy has the capacity to cover the account. This is because such underwriter must have purchased adequate reinsurance cover for the particular account.”

Stakeholder’s View

To the FBN boss and other insurers, this is right ideal and logical, but to an average Nigerian who bought insurance policy cover, it is pure fraud as far as they are concerned. For insurance companies, insurance policy cover once purchased has been purchased irrespective of whether there is extension or not.

But the view of the public is that anybody who bought cover for a risk must be indemnified when risk occurs with or without extension.

Indeed for members of the insuring public, the issue of extension raised by the insurers in the EndSARS claims is always the case.

According to them, most times, insurers do not pay claims not because they don’t have the money to pay but because they will always bring up argument on the extent of coverage of policy bought.

This has called for the need for insurers to design and sell specific policy for specific risk instead of relying on the extensions, which many Nigerians neither understand nor believe in.

Tackling Emerging Risks

Presently in Nigeria losses emanating from social vices like kidnapping, terrorism activities from the Boko Haram insurgents as well as huge losses from climatic change factor like flood and other similar negative developments in the country, which amount to huge loss of lives and property are categorised as emerging risks.

Some insurers believe they lack the capacity to play in this line of business while others regard the emerging risks as uninsurable.

Insurance industry analysts said a close watch at the activities of the insurers shows that since the launch of the regulator’s medium term plan for deepening insurance penetration in the country tagged Market Development and Restructuring Initiative (MDRI), operators are fast changing from their stereotyped business model of competing for government businesses like group life insurance to becoming more versatile in looking inwards to the opportunities in other business lines like micro insurance which many are experimenting on today.

According to the analysts, they are however still far from looking into the emerging risks area, which many said has to do with huge losses that are capable of liquidating the entire capital and asset of an insurance firm.

This, they said, is because many insurance firms still assume that emerging risks are still remote or new in Nigeria, as such, they have not yet included the policy cover in their product profile and portfolios but the analysts believe the need for their inclusion are currently there in the industry.

According to the Managing Director of Universal Insurance, Mr. Ben Ujoatuonu, the emerging risks like social and political unrest is a challenge to both the insuring public and to insurers.

Ujoatuonu, in a telephone chat told THISDAY that recent happenings in the country like the #EndSARS protest are enough to encourage Nigerians to embrace insurance services.

According to him, the destruction of businesses by hoodlums during that particular civil unrest should serve as an eye opener to Nigerians on the need to buy insurance for protection because no one knows when risks of this sort will come.

He said there was likelihood that this type of commotion and the associated risks on lives and properties would come again anytime because peoples’ expectation from government is becoming higher and government cannot totally meet these expectations.

On the part of the insurers themselves, he said it is equally a challenge for them to brainstorm and come up with policies that will cover damages caused by these emerging risks.

Natural Disasters

Over the years, scientists and environmental experts have been warning against the negative effects of such climatic change like global warming on the environment.

They have been calling for action plans by governments and risk prevention and mitigating experts and agencies to prevent and provide for the effects of climatic change.

A group of scientists called union of concerned scientists in their recent reports on the impact of human activities on the environment said: “Human beings and the natural world are on a collision course. Human activities inflict harsh and often irreversible damage on the environment and on critical resources. If not checked, many of our current practices put at serious risk the future that we wish for human society and the plant and animal kingdoms, and may so alter the living world that it will be unable to sustain life in the manner that we know”.

The group warned that fundamental changes are urgently needed in order to avoid the collision the present course would bring about.

The report said among all the natural disaster that affect man, flood has the worst disastrous effect in terms of human life and material resources destruction. The report therefore called for action plan against the devastating effects of flood.

In response to this call, governments of advanced countries like the United States of America has among other actions set up what it called National Flood Insurance Programme (NFIP).

The program enables property owners in participating communities to purchase insurance protection from the government against losses from flooding.

But for developing country like Nigeria, there is the feeling that natural disaster risk like flood is the exclusive of advanced and industrialised countries like America, Australia and Japan which are known to have engaged in industrial activities that cause climatic change as a result of the ozone layer depletion.

With this feeling, both Nigerian government and the insurers remained passive to plans to mitigate losses from these emerging risks.

However the Commissioner for Insurance, Mr. Sunday Thomas, in a recent interaction with the media said Nigerian insurers could no longer ignore emerging risks because of its resurgence.

He challenged the insurers to put on their thinking caps for market innovations in terms of product offerings to address present and future problems.

2012 Flood Risk in Nigeria

The 2012 flood which reports by the National Emergency Management Agency (NEMA) said costs federal government a whooping N2.6 trillion took everybody by surprise and proved insurers wrong in their thinking that natural disaster risk is remote to third world and developing country like Nigeria.

Environmental experts who analysed the impact of the 2012 flood said it is indeed one experience that will remain indelible in the minds of Nigerians and calls for risk intervention plans for the future.
According to the experts, one of the sectors that is looked upon to step towards mitigation plan against flood risk is the insurance industry.

They viewed that the industry is a risk bearer and Pillar upon which the economy of every country stands; so it is expected to collaborate with government to put in place adequate risk preventive and risk mitigating plans for Nigerians who may fall victims of this flood destructions.

As this year’s rainy season persists, the Lagos State Ministry of Environment and Nigeria metrological section have warned Nigerians living in flood prone regions of the country to prepare for the worst and make haste to vacate the areas if possible.

Psychologists said obviously these people are emotionally traumatised because of uncertainties about what this year’s rainy season will spell for them.

They however said if government and insurance operators can put up collaborative efforts, such Nigerians would have less worry especially during this year’s rainy season and beyond.

Operators’ Plans

The industry operators shortly after the 2012 flood realised that they could no longer ignore their responsibility in this regard called for collaboration with government to face the challenge.

The former President of the Chartered Insurance Institute of Nigeria (CIIN), Mr. Kayode Lawal had during his tenure as the CIIN President made a call for what he described as intervention fund from government to enable the industry go into natural disaster risk cover which he said falls within emerging risk profile.

He said the industry needs such assistance from government because the risk is so huge that insurers alone cannot cater for it without government intervention.

The response of government to this call is still not seen while year in year out issues of climatic change especially flooding continues to challenge both federal and state governments.

The latest was recently experienced by indigenes of Anambra state in the Eastern part of Nigeria where flood has chased away whole village.

Here in Lagos, the story told by people living in some parts of the state, especially Lekki area is not different.

Lessons from Disasters, Insecurity

Observers have said that experience from huge losses incurred by both government and the citizens from the 2012 flood and Boko Haram activities in the North East of the country should serve as a lesson to government in particular to support any effort geared towards rescuing the people from the effects of flood and terrorism and establish them to forge ahead in life.

THISDAY recalls that it was after the flood and the advent of terrorism activities that federal government sets up a place it tagged camp for internally displaced persons, which by interpretation means home for destitute in one’s own country.

Government had set up such places because there is no other way of rehabilitating the victims; more so since they did not have insurance cover that would have paid for the damages and return them to their former financial position before the occurrence of the flood.

In its simple definition, insurance is a contract whereby, for specified consideration, one party undertakes to compensate the other for a loss relating to a particular subject as a result of the occurrence of designated hazards.

Since the emergence of terrorists operation and flooding in Nigeria, government, philanthropists, donor agencies and concerned individuals have been spending a lot in form of donations to maintain these displaced citizens.

These donations only serve the purpose of feeding to keep them alive and not to return them to their former productive state of life.

Insurers on their part have maintained that risks such as flooding, kidnapping and terrorism cannot be insured in Nigeria, as they have no product that can take care of it.

According to the insurers, for risks like flood, the federal government through the National Emergency Management Agency is in position to take care of that, adding that it is under what they described as act of God; therefore, no single insurance firm can stand and carry such risks.

The insurers on the other hand reasoned that given Nigerians’ negative attitude towards insurance, if such specialised products are designed, it would take time before anybody would ask about it. This according to them is reason they have not thought about designing such products.

Contrary to this fear, life underwriters said in recent times the demands are coming gradually.
According to them, demand for special risks cover in the country has been on the increase, particularly following the advent of kidnapping across the country.

An insurance marketer with one of the big players in the industry told THISDAY that demand for kidnapping and ransoms cover started with expatriates from the oil and gas sector, but today wealthy Nigerians buy the policy.

Foreign Insurers

THISDAY gathered that following the advent of these emerging risks; foreign insurers are trooping into Nigeria in search of such businesses to underwrite. This being the case, indigenous insurers should rise up to this challenge of fully participating in the underwriting of these risks.

For emerging risk like terrorism, Nigerian insurers should study the steps taken by their counterparts in experienced country like America in order to get it right.

Reports from American terrorism insurance underwriters said that the September 11, 2001, terrorist attacks created a severe market shortage for terrorism insurance. As a result, the US Congress passed the Terrorism Risk Insurance Act, which created a federal “backstop” for insurance claims related to terrorism events in the US.

The Act became law on November 26, 2002, and has since been extended and modified twice: in December 2005 and again in December 2007, when it was renamed the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA).

It said under TRIA, insurers must make terrorism insurance coverage available to their policyholders when offering to underwrite an accompanying line of business.

Analysts said since the Nigerian insurance regulatory body, National Insurance Commission (NAICOM) some years ago, signed technical agreement with its US counterpart, NAIC, it is expected that the commission should borrow a leaf from the guidelines on underwriting of emerging risk like terrorism which the American regulator has put in place and do the same in Nigeria so that underwriters venturing into the specialised business will be more focused and do the business in a way that will benefit both the industry and the insuring public.