CHIEFTAINS of the nation’s insurance industry have suggested the granting of full autonomy to the National Insurance Commission (NAICOM) similar to other regulatory authorities in the financial services sector to be able to deal with the increasing unethical practices in the industry.
Besides, the regulator should initiate standard IT platform for the industry that would enable the commission to monitor operations and processes of underwriting companies and brokers on daily basis.
Some practitioners who spoke to The Guardian during the Chartered Insurance Institute of Nigeria (CIIN) professionals’ forum held at Abeokuta, Ogun State, said that granting full regulatory powers to NAICOM similar to the Central Bank of Nigeria in the banking industry, Securities and Exchange Commission (SEC) for the capital market and National Pension Commission (PenCom) for the pension industry was the only way out for the commission to deal with sharp practices in the insurance industry.
According to operators who spoke on condition of anonymity explained that the commission has performed creditably well within the limitations of the enabling law, but NAICOM can not take appropriate decisions on critical issues without obtaining approval from the Ministry of Finance and the supervisory minister of government.
He said that this is not what is obtained in other regulatory authorities in the financial services sector such as the CBN, SEC and PENCOM. These regulatory bodies have the power to discipline and sanction any operator in the banking, capital market and pension industry, adding that NAICOM is list regarded among the regulatory bodies in the financial services sector.
This is collaborated by the report from international organizations and rating agencies that have continued to rate the Nigerian insurance industry as being under-regulated. These organizations 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 programs (FSAPs) conducted by the IMF and World Bank.
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”.
Said the report on solvency “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 license and possibly withdrawal.”
Also the chief executive of a leading underwriting company in the industry said that appropriate IT technology framework would ease the monitoring of the activities of operators as regards rating, commission, claims payments on daily bases right from NAICOM head office at Abuja, the inspectors would be able to dictate those who cut rates and other malpractices in the market. This is what CBN, SEC and PENCOM does on daily basis, and no operator in the sectors would want to risk the heavy penalty and sanctions from the regulators, he said.
However, Group Managing Director/CEO, Cornerstone Insurance Ple, Ganiyu Musa, in his paper “Critical success factors for market expansion and penetration strategies” presented at the conference said that the Nigeria insurance industry is still developing, as the industry gross premium income (CPI) increased from N178 billion in 2009 to N339 billion (estimated) in 2014, while the banking industry recorded N2.8 trillion in 2014 (2009: N1.5 trillion)
According to him, though both industries recorded the same compound annual growth rate (CAGR) of 14 per cent over the five year period but insurance industry is yet to attain a N1 trillion topline.
Besides, insurance industry recorded a profit before tax (PBT) of about N28 billion (estimated in 2014, while the banking industry recorded N609 billion in the same period.
He also identified challenges facing Nigeria insurance industry as unhealthy competition, lack of product innovation, poor adoption of technology, customer apathy, limited skilled manpower, cultural and religious inclination; governance and risk management issues; solvency and weak capital base; unfriendly tax regime; and prevalence of fake insurance policies.