With the emergence of climatic change and other related risks, finance experts said Nigerian insurers need effective implementation of the Enterprise Risk Management system to weather the storm, writes Ebere Nwoji
The National Insurance Commission(NAICOM), precisely in May this year released a new code of conduct for operators in the insurance industry.
The main focus of the guideline was effective risk management and internal control framework.
Aside the insurance regulatory sandbox guidelines, the Enterprise Risk Management Framework for Takaful and Retakaful operators was one of the three guidelines released by the commission within the period.
In releasing the ERM guidelines for Takaful and Retakaful operators, NAICOM said it intends to establish minimum risk management standards for Takaful Insurance Operators (TIOs) in Nigeria.
According to NAICOM, the guideline discusses how management of risks inherent in the TIO shall be implemented as a TIO is exposed to risks that may affect its ability to achieve its objectives or even its continuing existence.
The commission has received a lot of commendations since the release of the guidelines .
On the other hand, industry analysts have viewed that as important as ERM is in the business of insurance which is core risk management, how effective operators of conventional insurance firms have strictly followed their own ERM if at all they still remember its content remains a big question.
Their reason for this question is not far fetched. It stems from the fact that if actually these conventional insurance underwriters have the ERM guidelines or are following the stipulations strictly, how come more and more firms in the system are going down to the extent that some are not being able to pay claims or even pay staff salaries.
This question has come up because even among the firms that are assumed to be doing well, there are some weak ones lying prostrated.
NAICOM, Analysts view
Shortly after the cancellation of operating licenses of Niger and Standard Alliance insurance, the commission threatened to withdraw the licenses of more erring firms to sanitise the industry.
“We have to sanitised the institutions and we will not allow weak companies to continue in order to protect the policy holders .This is important so that at the end of the day , no body will accuse us of having weak regulations .We are out to really protect the policy holders” said the Chairman of NAICOM Governing Board, Dr Abubakar Sani.
Insurance sector analysts said such weak firms exist because of weak ERM system.
Finance experts described ERM as a framework for managing organisational risk.
According to them, organisational risk is a broad term. It can encompass concerns ranging from ensuring employee safety and securing sensitive data to meeting statutory regulations and stopping financial fraud. Risk can be internal, such as equipment malfunctions, or external, such as natural disasters. What is considered risk varies from one entity to another.
In their view, managing risk is traditionally viewed as minimising harm to the value the organisation creates for itself, employees, shareholders, customers, and the community.
They said every enterprise decides what it perceives as a risk to the organisation and performs some form of risk assessment. According to them, an ERM framework is a set of principles and procedures that help the organisation manage anticipated risks so that it can successfully achieve its objectives.
In this sense, they said risk management solutions do two things: protect the enterprise from harm and create opportunities to improve business performance.
Finance experts said in Nigeria, the effectiveness of ERM in many insurance firms is questionable, especially in the face of stiff competition and rush to grab every available business to build their annual premium written, a situation which has pushed some to grabbing businesses they know they can’t handle their claims even with their reinsurance backing.
But the experts said there is solution at the end of the day as NAICOM girds up to reintroduce risk based capital model.
Enthroning ERM in Nigeria
Presently with the advent of emerging risks like climatic change, cyber crime and risk from civil unrests, the urgent need for enthronement of proper ERM system regime is starring on the faces of both big, medium and small scale insurance operators just like their counterparts in other climes.
Among global insurers, in the face of prevailing negative impact of climatic change on businesses and human lives, they have learnt to structure their business model to meet the challenges and realities of the change and its associated risks.
In doing this, they have through their risk surveying activities and professional advice influenced the choice and pattern of their clients in key areas such as construction, transportation of people and goods, and in manufacturing as well as in agriculture. They now regard this as aspect of ‘enterprise risk management process.
Efforts by African countries
Even among African countries, insurers don’t play with foreign alliances to mitigate against unforeseable risk through ERM survey.
For instance, way back in 2016 during the tenure of Ban Ki-Moon as the Secretary General, United Nations, African insurers entered into alliance with the United Nations World Food Programme (WFP) to give insurance coverage to farmers in the face of damages from climatic change in the region.
Commending their efforts then, Ki- Moon had said African insurers have worked with the UN World Food Programme to cover small-scale farmers in Africa so that should the rains fail, a policy pays out before they are down to their last cow or supply of maize.
He also said the UN Environment Programme, with funding from the Global Environment Facility, had partnered with insurers to develop wind power derivatives in Mexico that cover a wind farm during less windy periods.
The insurers do this under the newly evolved Principles for Sustainable Insurance (PSI) which targeted at providing global roadmap to develop and expand the innovative risk management and insurance solutions.
THISDAY recalls that few years back, the global insurance industry as part of its contributions towards combating the menace of natural disaster risk, went into strategic alliance with the United Nations Environmental Programme(UNEP) under the PSI initiative which held in Nairobi.
Media reports said the purpose of the PSI Initiative was to better understand, prevent and reduce environmental, social and governance risks, and better manage opportunities to provide quality and reliable risk protection. The initiative aimed at tackling natural disaster risk by identifying the most effective measures to combat disasters and helping communities implement them.
The initiative has as its vision to build a risk-aware world, in which the insurance industry is trusted and plays its full role in enabling a healthy, safe, resilient and sustainable society.
As Nigeria has now been enlisted among natural disaster risk prone nations, especially in the face of huge losses recorded by the country from flood and other natural disaster risk from 2012 flood, there is need for Nigerian insurers to begin to toe the line of the global insurers especially in the area of building risk aware communities and in participating in risk preventive initiatives like the PSI initiative.
Presently, Nigerian insurers are not yet there in terms of evolving risk preventive and risk awareness business model. This explains why the role of a body like the Risk Surveyors Association of Nigeria (RISAN) is not pronounced in insurance profession in Nigeria and their voice not heard.
Evolving risk preventive and risk awareness model as well as participating in risk preventive conferences like the PSI will no doubt help Nigerians living in flood prone areas and those like the inhabitants of Nanka in Anambra state where people live in fears of imminent earthquake due to menace of land slide and erosion to learn how to manage themselves to stay free from such risks.
On account of these, the immediate past president of Chartered Insurance Institute of Nigeria (CIIN), Mr. F Kayode lawal declared that the insurance industry needed an intervention fund in the face of emerging risks like kidnapping, terrorism, flood and similar risks which come under the emerging risk category in order to attend to the need for specialised products that would cater for the needs of Nigerians who may fall victims of these emerging risks.
But while waiting for these intervention funds, Nigerian insurers especially those edged in agric insurance, should like their co African countries, seek alliance with the UN in cushioning the effects of natural disaster on farmers’ crops especially as this could be part of the reason prices of food stuff has hit the roof tops.
For instance, there are reports that after droughts, pests destroyed crops during 2020 – 2022 farming year and that nearly 650,000 farming households, received cash payouts an agricultural insurance programme of the United Nations world food programme
This has stood as one of the largest crop index insurance pay out ever in African continent.
In September this year, the African Development Bank (AfDB) had unveiled the African Climate Risk insurance facility for adaptation (ACRIFA). The initiative is aimed at insulating countries against catastrophic weather-related events.
The facility, which will be hosted by the bank, expands its pioneering Africa Disaster Risk Insurance Program into a facility that will develop insurance to help African countries, specifically, their agriculture sectors, prepare for, adapt and build resilience against adverse effects of climate change such as flooding and drought.
“But while waiting for these intervention funds, Nigerian insurers especially those edged in agric insurance, should like their co African countries, seek alliance with the UN in cushioning the effects of natural disaster on farmers’ crops especially as this could be part of the reason prices of food stuff has hit the roof tops.”
“We have to sanitised the institutions and we will not allow weak companies to continue in order to protect the policy holders .This is important so that at the end of the day , no body will accuse us of having weak regulations .We are out to really protect the policy holders”