After about 35 years experience in the insurance industry in Nigeria, Olatunji Oluyemi, managing partner, Tespauruth Consulting Limited thinks the insurance industry should have grown more with better collaboration between the regulator and the operators. He also believes that focus of every regulation should be market development and growth. In this review of the insurance industry regulations says with consideration to developing countries like Nigeria, the regulator is saddled with an additional burden of work- to actually stimulate the growth of the industry.
“Regulators have the job of policing the players, while encouraging the development of the industry they oversee. They can do this in two major ways. In the first place the regulator lays down regulation that will encourage fair play, fair pricing, fair activity, and promote an overall level playing ground. But in particular, with consideration to developing countries like Nigeria, the regulator is saddled with an additional burden of work- to actually stimulate the growth of the industry. Let us look at how both aspects have been carried out under the Mohammed Kari led NAICOM.”
“As to regulation, insurance brokers and insurance companies seemingly are subject to a new directive every other month. These directives are taxing and lay out in minute detail the format for returns to the regulator, procedures for approving middle to senior level appointments, etc. Effectively it may be said, with fairness, that the regulator is micro-managing the industry. Protests from operators, it is said, are simply brushed aside, while more directives are churned out….The operators end up maintaining an army of accountants, lawyers, consultants etc. to prepare and file returns to meet the ever-changing requirements of NAICOM. It would not be out of place to say that this is inherently destabilizing.”
“NAICOM cannot be unaware that the modern trend of financial services regulation (banks and insurance companies in particular) internationally is to lay out broad frameworks of standards of action and activity, within which boundaries; players have limited freedom of action. Under successive BASEL (banks) as well as Solvency 2 (insurance companies) regulations in the European Union for example, banks and insurance companies are encouraged to develop and present to local regulators for approval, their own internal risk management models. Once these internal models are tested and meet the minimum parameters laid down in the relevant directives, the operators are allowed to utilize their models to test for capital adequacy (the capital adequacy risk), as well as the whole gamut of other risks an insurer is confronted with such as market risk, credit risk, etc.”
“And then, in 2019 NAICOM actually introduced the extant directive for recapitalization that only refers to minimum paid up capital requirements (capital adequacy risk, as measured by the solvency margin)! This ignores the other range of risk exposures with which an insurance company is confronted. But we recall that the suggested capitalization requirement in 2018- later withdrawn- laid down different capital requirements for the different classes of insurance underwritten, with the more ‘risky’ classes of insurance requiring more capital. I think the 2019 capitalization directive is quite unsophisticated. It is the antithesis, say, of the Solvency 2 EU Directive which came into effect on 1st January 2016. In this respect, Nigeria is swimming against the tide of recent international financial services regulation.
“The major attempt to stimulate industry growth in recent times has been the MDRI, an initiative that pre-dated the present NAICOM. Launched with fanfare at the initiative of the regulator, MDRI set overly ambitious targets of insurance industry restructuring and growth. The aims of MDRI have not been met, by a long mile. But MDRI is a subject that deserves detailed consideration. I would love to go into the detail in another, separate interview. Perhaps we could have another interview, just for consideration of MDRI, Oluyemi said.
Modestus Anaesoronye
