NAICOM moves to strengthen industry operations in 2017

The National Insurance Commission (NAICOM) has rolled out its regulatory plans for 2017, promising increased operational efficiency, customer protection and market stability in the nation’s insurance industry.

The Commission which underscored impact of the current economic situation, where Nigeria is grappling with recession, other dynamic business drivers (including improvements in best practices and standard) and peculiar conditions of the Nigerian Insurance Industry, said all of these  have created need for high level of prudence, innovation, proactively, and agility in both operations and regulations of the industry.

“Whilst insurance institutions need to take steps to minimize, if not avoid, the negative impact of externalities and ride on opportunities inherit in them, the regulator needs to ensure that customer protection and market stability receive priority attention.”

In  a statement issued Monday to all insurance operators titled “NAICOM’S regulatory priorities for the year 2017” the Commission said  “the commission hereby draws attention to the following issues and requirements that will engage its attention in 2017 so that insurers are prepared and, where necessary, also make contributions that will facilitate better outcomes for the industry.

The activities to occupy the commissions attention is the re-launch of the Market Development and Restructuring Initiative (MDRI)  with special and intensified implementation efforts on enforcement of compulsory insurance; diversification of distribution channels; increase in access points for insurance services; Micro insurance; Takaful; Improvement in data collection; Promotion of financial literacy, and therefore seeks suugestions and input from operators not later than February 2017.

Other areas of focus by the Commission include:

Capital Verification

Since the last recapitalization exercise in 2007, the business environments and the risk profile of all insurance Institutions have changed. In order to ensure protection of policyholders and beneficiaries of insurance contracts against unexpected losses of insurance companies, the commission will undertake a verification of the capital resources of all insurance companies in the first quarter of 2017. The cost of this exercise will be borne by the companies (the modalities shall be communicated in due course).

It will entail a verification of the Assets and Liabilities of all Insurance Companies. In preparation for this, boards are advised to ensure fairness in valuation of assets and liabilities of their companies when presenting the financial statements for the year ending 31 December, 2016. All professionals that participate in the financial reporting supply chain are expected to ensure their duties in valuation of assets and liabilities and issuance of opinion on financial reports are discharged creditably in accordance with relevant laws and professional standards.

Management expenses of Insurance Companies

The level of expenses of some insurance institution is becoming a cause for concern. In this regard, the commission will pay more detailed attention to reasonableness of management expenses to ensure that each company’s level of expense is appropriate for its business model and does not adversely affect its profitability, liquidity and capital adequacy.

The commission will expect each board to take definite steps to ensure reasonableness of its company’s expenses by ensuring that they are incurred wholly and necessary for the purpose of the business. Evidence of action in this regard should feature in the minutes of board meetings.

Statutory returns

A number of companies submitted their statutory returns for the year 2016 late. At the time of issuance of this statement some are yet to submit the required return and without explanation. This deprives the commission, policyholders, insurance intermediaries, analysts and other stakeholders of the relevant information about the performance and financial condition of the companies, as well as the level of their compliance with relevant provisions of the law.

The commission is poised to implement relevant measures to discourage companies from filling late returns and sanction errant ones appropriately. Amongst others, this will include a detailed review of their accounting and financial reporting systems, restriction of certain activities until relevant returns are filed, action against official accountable for financial reporting, as well as publicizing the compliance status of insurance institutions on our website for public guidance.

The boards of companies are expected to take interest in the timely filing of returns which, incidentally, contain information they need to effectively perform their oversight function. The non-rendition of returns is therefore an indication of the failure of the board.

In order to facilitate the timely rendition of returns, the commission will carry out a review of the current returns requirements and streamline them for more efficiency in preparation and submission. The transition to electronic submission will commence this year. All companies are required to send in their suggestion on areas for improvement not later than February 10, 2017.

Risk based supervision

The final road map for the industry’s transition to risk base supervision (incorporating all the suggestion made by the Nigerian Insurer Association), will be issued by the end of January 2017. As indicated in the draft exposed last year, the commission already has components of a risk based solvency regime in place which will only be improved upon in the light of changes made in regulatory standards after they had been introduced and the operating context of the Nigerian Insurance Industry.

While it is acknowledged that some time will be required to install full-fledged risk based solvency regime for the industry, the reality does not preclude the operators from paying attention to the risk to which they are exposed to, as a result of their underwriting, operational choices, and relevant drivers in the business environment. The commission has noted that some boards of directors do not give adequate attention to the risk exposure of their business and the adequacy of their capital. It is assumed that such companies wait until the commission informs them of the areas of concern and deficiencies in their solvency margin. The statement of compliance with Risk Management Guidelines appears to be issued without regard to the realities of the companies concerned.

In this regard, boards are advised not to see risk and solvency management as just an issue for compliance but as a practice worth imbibing by prudent and effective insurance institutions. On the commission’s part, appropriate measures and tools are to be deployed to ensure companies that pose greater risk to the attainment of its regulatory objective receive more proactive and intensive supervision. Boards will be expected to consider the risk register and solvency condition of their companies during their quarterly board meetings. With effect from 2017, they commission expects each company to send in report on board’s assessment of  their risk and solvency quarterly, as well as annual report on Own Risk Solvency Assessment (ORSA). Furthermore, all companies are required to have their appointed Actuaries issue a Financial Condition Report (FCR) of their companies as at 31 December, 2016 not later than 31 March, 2017.

Information technology

There is no doubt that the application of Information and Communication Technology (ICT) is a critical success factor in the running of any business today and the insurance industry continues to explore the benefits it offers. Information technology applications are catalyst to the development of any industry but not without its challenges, the most critical of which is security. They commission is to establish the framework for information technology supervision of insurance institutions and promote arrangements for efficient and more cost effective applications in the insurance industry.

Competence of director’s, senior management and persons in control functions

The commission is concerned about the performance of some board and management as reflected in their work not only from compliance perspective but also in terms of strategic and operational choice they make. Our strategic approach to these challenges is to develop a mandatory competence profile for directors and persons in senior management and key functions in liaison with relevant organs of the industry whilst also considering a number of mandatory learning requirements/trainings for director, which shall commence in February, 2017.

Corporate governance

The importance of corporate governance in the management of insurance institution cannot be over-emphasized. The commission expects all directors of insurance institutions to rise up to the challenges of not only ensuring that their companies comply with relevant laws but also that their activities take into account the interest of all stakeholders especially policyholders and providers of capital

The commission will pay more attention to the behavioral aspects of corporate governance and extract accountability from relevant parties, especially directors and member of management. Consequently, all insurance institutions are require to forward, to the commission, planned schedule for their board meeting for the year 2017 not later than February 10, 2017.

Service delivery by the commission

In the course of the year 2016, they commission collated data on the service expectations of operators in the insurance industry with a view to incorporating same in a service charter. This has been reviewed and it is being finalised into a draft document to be circulated for further inputs. It is important to assure all relevant stakeholders that the commission is committed to ensure timeliness in the rendition of its service.

The commission is going to leverage on information technology to improve its effectiveness and reduce the regulatory burden of manual operations on insurance institutions. All complaints about the service of the commission should be forward to the SERVICOM unit of the commission for prompt attention.

Conclusion

There is no doubt that the insurance industry is going to continue to experience its share of the current economic challenges. The commission recognizes the need to be innovative and proportionate in its supervision of insurance institutions and would be so guided appropriately. The commission, however, expect that the avenue provided by insurers committee will be fully exploited to progressively improve the insurance industry’s contribution to the real economy in the manner and scale expected by stakeholders.

Modestus  Anaesoronye