Ensuring a healthy insurance industry

No modern economy can function properly without an institutionalized risk cushioning mechanism. Insurance firms provide mechanisms for the protection of the insured in the event of any loss as provided by the insurance contract. Without insurance mechanisms, businesses, economies and lives will risk irredeemable collapse. Thus the search light of governments and regulation must always be on those who cushion losses.

This is why we commend the recent efforts by the National Insurance Commission (NAICOM) towards ensuring that existing insurance companies in the country abide with provisions on solvency margins in relation to gross premium and capital adequacy ratios. This move is coming on the heels of the regulator’s desire to have in operation only insurance companies that are healthy and able to meet their obligations at any given time.

Analysts believe that solvency margin as well as compliance with International Financial Reporting Standard (IFRS) may be among reasons majority of the insurance companies are yet to get approval for their 2012 full-year financial accounts almost eight months after the March 31 deadline when they were expected to submit their returns to NAICOM.

As at November 4, 2013, only 23 insurance companies out of the total of 59 had secured approval for their 2012 full-year audited accounts. While another 22 were at different levels of the approval process, there were another 14 that were yet to submit their accounts to NAICOM. Check on the books of insurance companies is a routine annual practice of the commission because it is necessary to keep operators on their toes to do the right thing at all times.

Insurance companies are required to operate transparently, observe necessary corporate governance guidelines, meet their claims obligation as well as make returns on investment to shareholders. Claims of investments are usually verified in such checks. Such verifications assures the regulator that proper investments are being made of collected premiums to guarantee meeting of claims obligations as they arise.

For insurance firms, just like banks, solvency is critical. Solvency borders on the insurance firms’ capacity to settle liabilities. If the asset value of a firm is inadequate, as a result of indebtedness or can never be accessed at the required moment (lack of liquidity) to settle claims, then the company is insolvent. Section 24 of the Insurance Act 2003 states that an insurer shall maintain at all times a margin of solvency in respect of its general business; being the excess of the value of its admissible assets in Nigeria over its liabilities in Nigeria.

We urge NAICOM to up the stakes in the insurance industry, and keep its regulatory eyes fixed on the conduct of insurance firms towards checking unethical practices that may put the whole industry at risk.

One area that requires attention is the proper enforcement of compulsory insurance requirements, as increasingly individuals and businesses continue to disregard these mandatory provisions. With adequate public education and on the spot enforcement drives the deepening culture of disregard for insurance cover by companies and institutions can be curbed and possible losses cushioned.