As a novice in the Nigerian insurance market, selecting a reliable insurer can be daunting. With many options available, it’s important to avoid making the wrong choice, as picking a struggling insurance company—one characterized by financial instability or poor claims settlement—can jeopardize your financial security.
In this post, we’ll discuss eight key red flags that signal an insurance company might be struggling, helping you make informed decisions and protect your financial future.
Also read:
Understanding the Role of Legal Counsel in Insurance Disputes
How to Effectively Handle Insurance Disputes and Complaints
Legal Aspects of Insurance Claims: A Guide for Policyholders
A Guide to Insurance for People with Pre-Existing Medical Conditions
1. Failure to Pay Claims
One of the biggest warning signs is a company’s inability or unwillingness to pay claims. A well-functioning insurance company will have a smooth and transparent claims process. If the insurer frequently delays or outright denies valid claims, that’s a serious indicator of trouble. Always check the claims payment history of any insurance provider before signing up for their products.
2. Lack of Annual Financial Reports
Transparency is key in any business, and insurance is no exception. If an insurer consistently fails to submit annual financial reports or delays their release, it’s a sign that the company may be concealing financial difficulties. A healthy insurance company will readily provide financial reports as required by law, and you can typically find these on their website.
3. Suspiciously Low Premiums
If an insurance company offers premiums that seem too good to be true, proceed with caution. Companies that significantly undercut the market price may be doing so out of financial desperation, knowing full well that they won’t be able to meet future claim obligations. Remember: cheap doesn’t always mean good!
4. Regulatory Fines
Insurance companies are regulated by authorities like the National Insurance Commission (NAICOM) to ensure they comply with industry standards. If an insurer frequently incurs fines due to non-compliance, it’s a red flag. A company that cannot follow basic regulatory rules is unlikely to provide reliable coverage or process claims efficiently.
5. Poor Awareness and Engagement
A company that isn’t actively educating or engaging with the public might be trying to hide operational issues. Reputable insurance companies invest in creating awareness, ensuring the public understands their services, and being transparent in their operations. Lack of public engagement can indicate that a company has something to hide.
6. Financial Instability
Low capital base, inadequate reserves, or a poor solvency margin are clear signs of financial distress. An insurance company that struggles with these financial metrics may not have the means to meet its obligations in the long run. Always research the financial health of an insurance company before you commit.
7. High Staff Turnover
A high rate of employee turnover, especially among senior management, can be a sign of deeper issues within the company. Companies struggling financially often find it difficult to retain qualified staff, which, in turn, can affect service delivery and claims processing. If key staff are frequently leaving, it’s time to reconsider your choice.
8. Poor Stock Price Performance
For publicly listed insurance companies, stock price performance is a good indicator of overall health. A consistently low or declining stock price shows that investors are losing confidence in the company’s future prospects. This can be a reflection of poor financial management, increasing liabilities, or an inability to generate adequate returns.
Also read:
Understanding the Role of Legal Counsel in Insurance Disputes
How to Effectively Handle Insurance Disputes and Complaints
Legal Aspects of Insurance Claims: A Guide for Policyholders
A Guide to Insurance for People with Pre-Existing Medical Conditions
Key Financial Indicators to Watch
Most of the red flags we’ve discussed can be found in an insurance company’s financial reports, which are usually available on their website. To uncover potential issues, keep an eye out for the following key financial indicators:
- Declining revenue or profitability
- Increasing expenses or combined ratio
- Low solvency margin or capital adequacy ratio
- Poor investment performance
- Regulatory non-compliance
- Decreasing assets or cash reserves
- Increasing debt or borrowings
Now you know the eight red flags to look out for when identifying a struggling insurance company. Remember: research, due diligence, and asking the right questions are your best tools for safeguarding your financial future.
At Transparent Protection Ltd, we are committed to helping you make informed insurance decisions. Follow us for more insurance tips and advice, and feel free to ask your questions in the comments below!
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