THE regulatory environment in the nation’s insurance industry may become increasingly too hot for weak underwriting companies, brokerage firms to contend, as the National Insurance Commission (NAICOM) in partnership with other regulatory bodies in the financial services sector were on the offensive to reduce sharp practices in the underwriting of insurance business in the country last year.
Apparently determined to restore the image and trust of the public in the industry, top directors in the Commission said the action became necessary as a cursory look at recent occurrences in the sector revealed that the insurance industry was at a critical cross road as regard its operations and regulation. Legislations and guidelines are flouted at will by operators and consumers alike, non-adherence to the provisions of the Insurance Act 2003, delayed claims settlement, rate cutting and other sharp practices in the industry.
Apart from the Commission that had taken measures to enforce the provisions of Insurance Act 2003, other regulatory agencies in the financial services sector such as the Nigerian Stock Exchange (NSE) and Security and Exchange Commission (SEC) also sanctioned operators in the industry for inability to submit their returns as stipulated by law.
The Commission in response to complaints of underwriting companies, brokerage firms and shareholders of over-regulation in the industry saying the regime of fines and penalties had become punitive. The Commission said, “It is pertinent to note that every report from international organisations and rating agencies have continued to rate the Nigerian insurance industry as being under-regulated. These organisations include the International Association of Insurance Supervisors (IAIS), the Financial Stability Board (FSB), the International Monetary Fund (IMF), KPMG and Standard & Poors. The assessment has taken several forms and different programs, one of which is the Financial Sector Assessment Programms (FSAPs) conducted by the IMF and World Bank.
According to the Commission, the last demonstration of under-regulation in the insurance industry was posted by Standard & Poors’ (S&Ps’) rating on Nigeria’s Property/Casualty Insurance Sector which indicated a High Industry and Country Risk Assessment. The report rated “Nigeria’s institutional framework in insurance based on their assessment of two factors; (a) regulatory framework and track record, and (b) governance and transparency – as weak. Improvements in these factors have come only slowly and both started from a low base”
The commission said “We cannot but honestly agree with the submission of the agencies that should aid your understanding of the situation. From the audited financials of nearly a dozen insurance companies, solvency gaps are recurring features of their activities for as much as three consecutive years. Appropriate regulation should have resulted in either suspension of the operating licence and possibly withdrawal. The Commission has chosen to show some understanding against the backdrop of massive investment losses following the capital market crash of 2009/2010. Whereas other sectors have achieved reasonable recovery, insurers and the Commission may no longer be able to invoke the excuses of the market crash as justification for the poor turn of event. The commission shall therefore have zero tolerance for solvency gaps in the ensuring years in the interest of the insuring public and for the avoidance of exposure of NAICOM to regulatory risk.
“Whereas the Insurance Act 2003 provides for submission of annual accounts not later than 30th June, the requirement by the Nigerian Stock Exchange for listed companies is 31st March. The commission had in the past continued to plead for the sector with other regulators for forbearance. Some of the underwriting firms do not submit annual accounts before Christmas. Going forward insurance companies must comply with all requisite regulatory requirements without plea subsidies from the commission.
“Suffice it to say that the growth of the industry has remained constrained by the near total absence of risk management practice and appropriate product pricing amongst other issues plaguing the industry. The consequence is massive loss of premium and wealth to stakeholders. No doubt therefore, that the price of listed insurance companies rarely record market gain while shareholders have not received dividends in the past three to five years in 80 per cent of insurance companies.”
Source: Guardian News