Insurers brace for risk management ahead of regulator push

Insurance companies are gradually instituting risk management mechanisms that will enable them fall in line with regulatory expectations for effective control and monitoring of the risks they carry.

This is coming ahead of enforcement expected in the Risk Based Supervision (RBS) policy that will soon redefine insurance business in Nigeria.

RBS, a new insurance policy aimed to protect stakeholders interest and guard against unprecedented failure of organisations, either as a result of negligence or ignorance would focus on firms with huge risk profile, the National Insurance Commission (NAICOM) has said.

According to the Commission, the policy will concentrate on companies that have high level risks which could undermine the interest of shareholders and policy holders, particularly as it affects capital against the liability they carry.

RBS is a structural supervisory approach that is aimed at identifying the most critical risks that face each company and through a focused review by the supervisor assesses the Company’s management of those risks and Company’s financial vulnerability to potential adverse experience.

Therefore being more sensitive to the risks incurred, enables supervisors to protect policyholders’ interests as effectively as possible and in accordance with common principles, experts said.

Bareneka Thompson, director NAICOM in his presentation on Transition to Risks Based Supervision had said RBS requires supervisors to review the manner in which insurers are identifying, measuring and controlling their risks and to assess system of risk response of a firm with the supervisor’s own processes and interventions in line with the assessment.

He said it also involves assessing whether an insurer’s governance, risk management and internal controls are adequate, and whether the solvency and liquidity of the insurer are sufficient to withstand unexpected shocks. “The central tenet of RBS is the relationship between risk and capital- the higher the risk profile of the insurer, the higher the capital it must hold.”

Bareneka further stated that the benefits of RBS to policyholders, the financial soundness of operators and general stability of the economic system is enormous.

According to analysts, this development will also result in emergence of specialised insurance companies, where some firms by virtue of their level of capital could decide to do only motor business, fire & burglary or any other aspect of the business.

At the moment, insurance Companies doing general business have as statutory capital N3 billion while life companies have N2 billion, whereas Composite firms, that is those doing both general and life have statutory capital of N5 billion. Reinsurance companies in the other hand have statutory capital base of N10 billion.

The plan for RBS in the Nigerian market actually began in July 2012, when NAICOM introduced Risk Management Framework Guidelines for identifying, measuring, monitoring and limiting the risk involved in the business for insurance and reinsurance companies.

The guidelines also laid down the processes for reviewing risk, identifying and prioritizing risk, and corporate governance issues, among others. The guidelines is primed to facilitate risk based approach and regime in the industry to ensure performance and effectiveness in its Risk Based Supervision and Risk Based Capital Approach.