From Compliance to Developmental Regulatory Model


Ebere Nwoji writes on the decision by the regulator of the insurance sector to migrate from compliance-based supervision to a developmental model

The National Insurance Commission (NAICOM), in search of strategies that will enable it develop the insurance market this year, transit from the compliance-based to developmental- based supervision model.

The commission, said this will during the year see it preoccupied with developments and implementation of policies that are structured to grow the insurance market, by among other things improving the level of patronage by Nigerians and enhancing insurance contributions to the national Gross Domestic Product (GDP).

The commission, said this developmental model is an advancement from the previous compliance and risk-based Supervision models it had experimented in the past.

The Acting commissioner for insurance, Mr Sunday Thomas, while speaking at a recent media seminar in Kano, had listed some of the developmental supervision projects lined up by the commission as unveiling of second phase of the commission’s Market Development and restructuring initiative(MDRI), which he said would mark out clear targets and tasks for all stakeholders in the industry.
According to him, vigorous pursuit and implementation of compulsory insurance in the country will form part of the developmental project.

He further said that the recapitalisation initiative going on in the industry is still part of the initiative, adding that the essence of the exercise was to ensure that the industry becomes more robust in its technical competence and financial base, building confidence, trust and enhancing market value.
The NAICOM boss, insisted that the initiative is aimed at repositioning the sector for self-actualisation in terms of growth and development, and that the process is up and running in line with the roadmap and that the Commission will see to its logical conclusion come December 31, 2020.

Reeling out other developmental programmes, Thomas, said, “the financial inclusion strategy has been central to the federal government developmental plan and the Commission has over the years invested hugely in the development of financial inclusion mechanisms which includes the introduction of micro-insurance and Takaful Insurance products intended to deepen the penetration of insurance in the country and bring into the fold majority of the populace that are hitherto excluded.”
He noted that so far, some milestones had been recorded in this regard with three standalone micro-insurance and four Takaful insurance companies already granted approvals.

In terms of claims payment, Thomas said the Commission was committed to ensuring financial soundness and viability of the insurers and the adequate protection of policyholders at all times, adding that these would continue to be part of NAICOM’s regulatory priorities and that it would continue to ensure that genuine claims are promptly paid while also ensuring a reasonable protection of investments of shareholders.

Other issues that the commission would focus on, according to Thomas, include ensuring that the right pricing of insurance products and effective deployment of technology for ease of transaction is achieved, digitalisation of insurance business to meet up the trend in other finance services sector as well as the introduction of new reforms and initiatives in line with international best practices for attaining the level of growth and development desired for the sector.

Before now, the Commission had experimented on a number of supervisory models in form of guidelines and initiatives with the sole aim of developing the market.
For instance, in 2010, the Commission, introduced guidelines on oil and gas to ensure that no risk in Nigerian oil and gas is taken abroad without the approval of the commission.

In 2011, it introduced operational guideline on filing accounts and returns as well as the corporate governance code.
Also, in 2012, it introduced operational guidelines on risk management framework for insurers and reinsurers.

In 2013, the Commission introduced new guidelines on premium collection and remittances as well as guidelines on Takaful insurance, in 2014, NAICOM introduced guidelines on commission, rebate and refund of premium, while in 2015, it introduced guideline on market conduct and business conduct.
In the same vein, in 2016, the Commission introduced the blue print and guidelines for the implementation of risk-based supervision.

Also, in 2017, the guideline on Bancassurance , customer protection and market stability was introduced and in 2018, it reviewed micro insurance guidelines thus assigning minimum capital to each class of micro insurance business.
The Commission’s journey in developing the market actually started in 2009, when it launched a three-year market development plan tagged Market Development and Restructuring Initiative(MDRI) aimed at increasing market capacity, improving market efficiency and increasing consumer protection.

The MDRI had aimed at deepening and growing the insurance market by focusing on four issues: enforcement of compulsory insurance, sanitisation and modernisation of insurance agency system, wiping-out of fake insurance institutions, introduction of risk-based supervision.

The Commission started the market development strategy through massive awareness creation which saw it dragging the operators into road shows in six geopolitical zones of the country to familiarise the people with the six compulsory insurances such as Group Life insurance in line with the Pencom Act 2004, Employers Liability insurance in line with the Workmen’s Compensation Act 1987, Buildings Under Construction insurance as stipulated by Section 64 of the Insurance Act 2003, Occupiers Liability insurance in line with Section 65 of the Insurance Act 2003, Motor Third Party insurance in line with Section 68 of the Insurance Act 2003 and Health Care Professional indemnity insurance – under Section 45 of the NHIS Act 1999 .

The MDRI initiative lasted till 2012, when the first phase which targeted at transforming the insurance market to N1 trillion market elapsed.

Though it could not meet the N1 trillion premium target, but it recorded such an improvement that grew the industry’s premium from N260 billion to the present level of N400 billion.
It also ushered in the risk-based supervision model, a supervisory approach that considers each of the risks that companies face and through a structured process, identifies the risks that are most critical to the financial viability of the institution.

Under the model, the supervisory on-site review process looks at the management of the key risk areas of a company and focuses attention on the critical net risk exposures.

NAICOM, had said in introducing the model, which was expected to place Nigerian insurance industry on global best practice, that it would ride on the van of Solvency 2 supervisory principle in regulating the activities of Nigerian insurance industry operators.
The RBS model was expected to see the insurance sector in Nigeria completely transiting from compliance based supervision which it was operating before, to the risk-based supervision era, just as the commission has successfully transited the industry from Nigerian account reporting standard system of finance reporting to International Finance Reporting Standard (IFRS).
Through this, the Commission under the leadership of Alhaji Mohammed Kari, had introduced a regime of tier-based minimum solvency capital.

The Commission had said the objective was to achieve solvency in the industry and to ensure that insurers have sufficient financial resources to meet their obligations with respect to the insured.
To strengthen the risk management systems of insurers; to carry out preventive control; to have a more flexible regulation emphasising on principles; to have a supervision system in financial sector assessment programme and to evaluate the strength of the financial systems in the country.

This was however nullified in January 2018, as both the operators and shareholders took the Commission to court on account of deadline for compliance.
The aim of all these initiatives is to grow the insurance market and stand it on the same pedestal with its counterparts in the developed and developing world.

One of the operators and Managing Director Consolidated HallMark Insurance, Mr Eddie Efekoha, described these developments and regulatory initiatives of the commission as a bitter pill that must be swallowed to get a sick baby healthy.

He said the only problem operators seem to have is that all of them seem to be coming at the same time. He, however, said with determination, operators would live to meet with these initiatives and regulations.