IRA probes general insurance rates

By LYNET IGADWAH
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Summary

• The regulator is looking to hire a consultant to conduct an actuarial study to determine appropriate premium rates.
• Ideally, premiums should be based on a rating process, the primary objective of which is to enable the insurer to collect premiums that would allow it to meet its business expenses and make a profit.

The Insurance Regulatory Authority (IRA) will investigate how general insurers set their premiums, saying there is preliminary evidence policyholders are being overcharged.

The regulator is looking to hire a consultant to conduct an actuarial study to determine appropriate premium rates.

Ideally, premiums should be based on a rating process, the primary objective of which is to enable the insurer to collect premiums that would allow it to meet its business expenses and make a profit.

General insurers are, however, heavily influenced by market forces which have recently seen some of those offering private car insurance, for example, increase premiums by 50% without taking into account the different risk profiles of customers.

“It is important that the general insurance market functions well and delivers good results for all consumers,” the IRA says in the notice calling on interested consultants to submit applications by March 9.

“Evidence of the nature and extent of complaints received at the Insurance Regulatory Authority (IRA), however [shows] this might not be the case as insurers continue to use pricing practices which may, in the long term, distort competition and thus increase costs both for consumers and for businesses themselves, thus driving overall prices higher for consumers.

The consultant will be required to make recommendations on the need for any reviews, changes to the legal and regulatory framework and/or premium pricing approaches for insurance products with the aim of addressing identified gaps or mismatches.

The adviser will also be mandated to develop policy guidelines for the pricing of insurance product premiums “for the public service to guide in streamlining the management and administration of benefits”.

The scope of work includes the assessment of the supply actors involved in the pricing of insurance products, the extent to which they influence competition and therefore the premium rates paid by consumers.

“For some time now, concerns have continued to be raised about insurers’ premium pricing practices which, in certain circumstances, can lead to poor outcomes for consumers,” the IRA said.

“Pricing for reasons other than the risk profile of the insured limits effective competition and may limit access to and use of insurance services.”

Insurers were recently temporarily barred from raising car insurance premiums by up to 50%, pending the decision of a case filed by a lobby group.

Most insurance companies have attributed the proposed premium increase to an increase in claims, some of which are fraudulent.

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