RBS to focus on companies with huge risk profiles

Risk Based Supervision (RBS), a new insurance policy that targets to protect stakeholders interest and guide against unprecedented failure of organisations, either as 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 policyholders, 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 Inspectorate, NAICOM in his presentation on Transition to Risks Based Supervision 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.

Mohammed Kari, commissioner for Insurance, had said just as the financial system has evolved, so too has the supervisory framework. “We believe that a sound regulatory and supervisory system is necessary for maintaining a fair, safe and stable insurance sector for the benefit and or protection of the interests of stakeholders, as well as promote stability of the financial system.”

Kari made said while supervision in the past tended to correct failures, and operators lacked the vision to see impending crisis, the new regulation would see ahead and stop pending crises.

While though this change has been misinterpreted by some operators as high handedness, the Commission is making all efforts to build the appropriate expertise to ensure that success is achieved and so the market is expected to sit up and build internal proficiencies and structures that would make the implementation seamless.

“The market association shall be required to participate actively in the implementation process and make contribution through Industry Working Groups (IWGs) as recommended in the RBS Roadmap. We need to once more emphasis the need for market collaboration as we go forward, this changes cannot be surmounted by operators individually, resources, studies and experience need to be shared, Kari stated.

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.

The risk regulation approach was more focused on setting standard and shifting the responsibility of deciding the risk appetite of the operator to the Board and Management of each company.

Modestus Anaesoronye