Operators are dragging their feet over the implementation of the much talked about Risk Based

Supervision (RBS) in the insurance industry, despite its ability to rescue the drowning financial subsector. In this report, DAVID AGBA writes that with its operational advantages, domestication and implementation of RBS to cater to the peculiarities of insurance industry in Nigeria, may be the path to toe in further developing the industry and deepening its impact on the economy.
Whenever it comes to experiencing a change, there is always the fear of uncertainties that such a change may herald. This applicable to nearly every aspect of human endeavour, from the socio-political to the socio-economic spheres and anything in-between.
However, this is normal, just as it is critical to come to terms with the reality that only change itself is constant.
The Nigerian insurance industry operators are currently finding themselves in the situation described above, as they struggle to come to terms with the benefits and relevance of the Risk-Based Supervision (RBS) to further developing and harnessing the potential of the industry.
RBS is gradually becoming the dominant approach to regulatory supervision of financial institutions around the world. It is a comprehensive, formally structured system that assesses risks within the financial system, giving priority to the resolution of those risks.
According to the Financial Services Commission of Barbados, RBS is often contrasted with rules-based regulation, where the latter, also known as principles or compliance-based supervision, is a method of regulation which involves checking for and enforcing compliance with rules – legislation, regulations or policies – that apply to an entity.
RBS has a regulatory emphasis of “focusing on what matters” and assessing the degree of risk in the company’s business operations and determining how to reduce the risk as required.
With RBS, companies (clients of insurance firms) are always being monitored, both for compliance with the rules and for how they approach risk management. Failure to comply or to manage well is noted, and action is taken according to the appropriate legislation, to deal with any concerns.
In an RBS regulatory system, finding contraventions of the law, regardless of materiality, reconciliation of data, counting the securities and other detailed checking, including clients’ business strategy and financial analysis are major considerations. Also, on-site inspections, knowledge of companies’ market intelligence, management style, attitude to risk and risk control environment are critical aspects of consideration under the RBS rules.
With its deep-rooted assessment features of client companies, the RBS definitely holds the future for insurance in Nigeria, alongside the operators whatever strategies being muted to grow the industry.
Uninterestingly, at the moment, operators appear not ready at all for the adoption and implementation of the RBS. Clearly, there seem is a lackadaisical attitude of operators towards the global rule in the insurance industry. Operators appear clearly unprepared to key into the new regime even when the National Insurance Commission (NAICOM) has set 2018 as period of implementation.
As 2018 draws closer, some insurance operators have even complained of timing of its takeoff, leaving indications that the regulator is either in a hurry, or pushing the operators to bite more than they can chew.
The NAICOM has however insisted that the RBS would ensure safety and soundness of the insurance sector.
At an industry event in Lagos hosted by the Nigeria Council of Registered Insurance Brokers (NCRIB), NAICOM’s Deputy Commissioner for Insurance, Technical, Mr. Sunday Thomas, maintained that there would be a shift from rule-based to capital-based regulation and that it would no longer be a case of one cap fits all.
“Your institution (company clients to insurance firms) will be looked at, profiled, and the appropriate regulatory policies will apply,” he hinted.
However, without any effort at hiding the operator’s position about adopting RBS, the Chairman of Mutual Benefits Assurance Plc, disagreed with NAICOM, saying that the regulatory body might be jumping too fast to implement the RBS, without considering the peculiarities of the Nigerian economy.
He said, “We don’t know whether Nigeria is prepared for these policies. That was how they brought the Financial Reporting Council to us and we are still fumbling with it. Now NAICOM has joined some international associations and is bringing their rules and regulation to us without finding out the peculiarities of our country.”
Similarly, the Chief Operating Officer of Aiico Insurance Plc, Mr. Babatunde Fajemirokun, while speaking at a media parley in Lagos recently, said that due to inadequate actuarial skills in the industry, adopting the RBS could be challenging. He stated that adopting ‘Solvency 2’ might be aggressive but it can be modified to country equivalents and apply it to the maturity of the country.
But what remains true is the discipline and adequate regulation that the RBS entails.
Thomas said that when the RBS comes into effect, companies would no more be allowed to transact business above their capital, which amounts to overtrading.
To ensure that operators are on same page with the regulator in adopting and implementing the RBS anytime soon, NAICOM may have to look into ways of domesticating the RBS rules as it suites the Nigerian market, but with adequate elements of global standards, especially at the early stage of implementation.
The industry cannot afford to continue to wait for the right time, as the right time never comes. The right time is always now.