Insurance and hijacked “ENDSARS” protests

Ewherido is the MD/CEO of Titan Insurance Brokers Limited

WH A T START ED AS A PEACE FUL protest to end police, especially the Special Anti-Robbery Squad (SARS), brutality was hijacked and tainted by bad elements, leaving in its wake more deaths, looting and destructions. My condolences to families who lost loved ones. I also sympathise with those who lost their valuable properties and investments.

What do these deaths and destructions portend for the insurance industry? You can say, on the one hand, “gloom” and you have a point. Underwriting companies, which are working towards meeting recapitalisation deadlines, will now be saddled with large claims as a result of deaths, bodily injuries, and property loss and damage. Do not be surprised if some insurance companies record losses or are unable to pay dividends to their shareholders at the end of the financial year.

Alternatively, you may choose to look at impending claims from a positive perspective. The carnage of the last few days bring to fore the importance of insurance protection for individuals and corporate bodies. This can lead to an upsurge of demand for insurance products.

Let us look deeper into the implications the deaths and destructions that followed the hijacking of the #EndSars protests by hoodlums for the insurance industry. We shall naturally start with people and deaths. Human life is invaluable and irreplaceable. Any loss of life diminishes, not only the immediate family, but our common humanity. Loss of limbs or body organs (eyes, for instance) is also irreplaceable, unlike properties that can be restored, replaced or rebuilt. So, payment for loss of life, limbs or organs, is not to replace or restore, but a mere compensation to the bereaved family or the person, who lost her or his limbs or organs.

Now, let us look at the insurance policies, where the insured or third parties can get compensation in this regard. The family of an insured, who has a life policy and died during the protests and carnage that followed, is entitled to the full sum assured of the life policy. For instance, if an insured had a N20 million life policy, his family is entitled to the full N20 million. it does not matter whether, he took the policy only two months ago and had paid only a fraction of the N20 million. Also, if an employee is part of group life insurance policy of his company and tragically loses his life within the last one week, his family is entitled to his death benefit. A lot of the time, the benefit is three times the annual emolument of the employee.

Also, if a holder of a personal accident insurance dies and the cause of death is traced to an accident, his family is entitled to the benefits. This also applies when the person is part of a group personal accident insurance cover. If the person suffers a broken limb or loses a limb, he is also entitled to compensation according to the terms of the policy. Such accidental situations covered include being knocked down by a vehicle, falling off a building or staircase or falling into a drain.

Also, if a person dies or suffers injuries during this period, the employers’ liability policy of his employer’s insurance company will be liable, provided the death or accident happened in the course of employment. That is to say the employee died while carrying out official duties. Anything outside official duties is not covered. During the week, we also saw videos of people, who were knocked down by vehicles during the chaos. If the vehicles concerned can be tracked, the insurance companies that insured the vehicles are legally liable for third party bodily injuries and death. If it is third party property damage, they are liable to the tune of N1 million.

Which brings us to the import of material damage on insurance since the protests were hijacked and they degenerated into arson, looting and violence. Since the violence started, private and public properties have been burnt and looted. There are two issues. Do these properties have insurance and do the insurance policies adequately protect these assets against all the risks that just occurred?

Let us start with the fire and special perils insurance. A typical fire and special perils policy excludes fire resulting from “… riot, civil commotion, war invasion, act of foreign enemy, hostilities (whether war be declared or not), civil war, rebellion, revolution, insurrection, military or usurped power.” But you can get an SRCC (strikes, riots and civil commotion) extension to your fire and special perils policy.

The implication is that those with fire policies, but without the SRCC extension, whose buildings and contents were destroyed, are on their own. Those who also insured their building only with SRCC extension, but did not insure their contents against fire, are also on their own. Another issue that may arise is the proper description or interpretation of what happened: is it a riot, insurrection, political uprising, rebellion? There is a possibility that some claims will go to arbitration and finally law court for judicial interpretation and determination of liability.

We also have business premises, malls and shops that were looted or/and set ablaze. Which peril caused the loss/damage, fire or theft? That will be for the loss adjusters to determine. Where it is obvious or proven that the loss and damage were caused by theft, the question is does the victim have a theft insurance? Is the cover adequate? Where there is underinsurance, the insured will be penalized.

You also have business interruption insurance.

When business premises are damaged or looted, it takes a while before some of the affected businesses reopen shops. Their fire policy will take care of material loss and damage caused by fire, while the theft insurance policies will take care of losses and damage as a result of theft. But while the business is inoperative, fixed costs are still being incurred, salaries are still being paid and there is loss of profit. All these are what business interruption insurance, AKA consequential loss insurance, covers. And I suspect that many of the affected businesses do not have consequential loss insurance because it is not widely patronized.

What is the implication of the deaths and destructions for the insurance industry in Nigeria? It is too early to say, but certainly not all the buildings destroyed or looted have insurance. For those with adequate insurance, the insurance companies will be liable. Usually, when an insurance company gets a business, it takes a proportion of the risk it can accommodate (it is called retention) and cedes the balance to its re-insurers or other insurance companies. Those insurance companies with fundamental underwriting principles may not be as hard hit as those that do not have.

Since some of the affected individuals and organisations might not have insurance to cover their losses, government might decide to pay some compensation to help them get back on their feet. If that happens, insurance companies will take the amount of government compensation into consideration in settling the final claims. For example, if company XYZ suffers a loss of N150 million and government pays it a compensation of N100 million, what its insurance company will be liable to pay to it is N50 million to cover its N150 million losses. This is because of the principle of indemnity, which precludes policyholders from making profit from insurance policies in the event of a loss. A policyholder is only entitled to be restored to the financial position he was immediately before the loss, no more.

If government does provide relief to affected individuals and companies, insurance companies might benefit indirectly because of the principle of indemnity, which we mentioned earlier. But I do not see any possibility of government giving any financial support to the insurance companies affected. That only happens when losses are wide scale and of catastrophic proportion and we do not know the extent of losses yet. The insurance industry might be in for a nervous wait and interesting times.