NAICOM kick-starts risk-based supervision regime for insurers

A new regime of consolidation in the insurance industry, planked on risk-based supervision, has commenced in the sector, with the objective of restructuring operations of underwriting firms in the country.

By the guidelines rolled out by the National Insurance Commission (NAICOM), the model will require the classification of assets of the insurance companies to ascertain their capabilities to underwrite various risk portfolios in the industry. The Commissioner for Insurance, Mohammed Kari, while speaking at the recent industry committee meeting, said “from now on, our programme would be on risk-based supervision, consolidation exercise has become necessary.”

He said the commission has launched the sensitisation exercise to educate operators on the need for a switch from rule-based regime to risk-based supervision for insurance to play effective role in the economy.

According to the him, consolidation does not mean just an additional capital, it may be redefined as the type of insurance business the companies want to operate. “Today, we have capital as the only basis for operation and if you meet the minimum capital, you can operate. For instance, underwrite any cover without consideration to the obligation to stakeholders and that is why we have infractions in the industry, explaining why we have many players in the industry that do not add value to the services they provide, both in the intermediary and insurance sectors.”

He stressed that for companies to underwrite risk, they must have enough assets to cover the risks being underwritten. “So, risk-based is being able to identify what is your financial capability. If your financial capability does not guarantee you to insure oil because of the huge capital layout involved in terms of obligations, you will not be allowed to insure the risks.”

He added that Insurance companies are to become specialised underwriting firms to add value to the services operators provide for their customers, especially in meeting obligations to stakeholders in the industry.

The Director-General of the Nigerian Insurers Association (NIA), Sunday Thomas, in his remark, said that an industry committee in conjunction with the commission has been working, as the commission is just commencing the implementation of the framework. “It has started the sensitisation of the operators on the risk-based supervision.

This is quite necessary to educate and inform the market on what is coming. It means by the time the commission starts at different levels, companies will know the levels they are. It means that if you want to underwrite at the jumbo level, you have to meet the requirements of being there. If you want to operate at the small level, you choose the level you want to belong, that is the essence of the whole exercise.”

An industry operator, who lauded the new supervisory model, said that from the audited financial reports of a number of insurance companies, solvency gaps are recurring features of the activities for as much as three years. “The near total absence of risk management practice and appropriate product pricing are among other issues plaguing the industry. The consequence is massive loss of premium and wealth to stakeholders. No doubt therefore, the price of listed insurance companies rarely record market gain, while shareholders have not received dividends in the past five years in 80 per cent of insurance companies,” he said.