Kari’s Era And The Positives In The Insurance Market.
By CHUKWUMA KELECHUKWU
With the approval of Mohammed Kari as Commissioner for Insurance, presiding over the National Insurance Commission (NAICOM) in July 2015, President Muhammad Buhari appointed a courageous professional to further the good work and foundation laid by the former CEO, Fola Daniel.
Kari, a professional with several years of experience, came with a number of innovative policies to deepen the insurance sector and bring it to an enviable position in the financial services sector and indeed, the economic sector in general.
Prior to his appointment, the industry has battled poor financial state, low confidence among policy holders owing to the poor attitude of operators at honouring obligation and the operators’ resistance to changes that will better the sector.
Being a professional who is back to a familiar terrain, Kari is at home with the challenges and quickly wrought solutions to the myriads of problems that beset the industry.
One of the solution is increasing the paid up capital of share capital which seek to improve the financial capabilities of the underwriting segments of the industry. The industry has been challenged by inadequate financial capabilities and increasing the capitalization is a sure way to ensure safety and financial soundness of insurance institutions. This is key in the transition to risk based solvency regime
Under this new regime of capitalisation which comes to effect on June 30, 2020, Life providers are to increase to N8 billion from the current N2 billion awhile General business operators are to shore up their capital base to N10 billion from N3 billion. Composite business providers are to go to N18 billion from N5 billion while reinsurance providers are to move to N20 billion mark.
S/N | CLASS OF BUSINESS | EXISTING MINIMUM PAID UP SHARE CAPITAL (N’ BN) | REVISED MINIMUM PAID UP SHARE CAPITAL (N’ BN) |
1 | Life | 2.0 | 8.0 |
2 | General | 3.0 | 10.0 |
3 | Composite | 5.0 | 18.0 |
4 | Reinsurance | 10.0 | 20.0 |
Raising the capitalization for the underwriters is compelling now considering the state of the Naira, Nigerian currency which has necessitated that all service providers in the economy improve their financial base to be able to cope with unexpected challenges that are characteristics of a depressed economy.
As is normal with human being, change is always resisted as exemplified in the complaints by some industry operators. Events of recent weeks have however proven that the NAICOM’s decision to increase capitalization is a move in the right direction because, its counterpart in Ghana, National Insurance Commission, took a cue from Nigeria, asking the operators to recapitalize even above the benchmark by Nigeria market.
Only Monday 24 June again, the Central Bank of Nigeria CBN also hinted the banking sector to prepare to increase their capitalisation in response to the challenges of the current economic realities.
What this simply means is that, the Naira is weak and operators need to improve their financial base in line with the current economic realities.
The tenure of Kari has also seen a rare demonstration of courage, tackling headlong, operators that have been seen as untouchables and operating above the laws. These set of firms, have created negative images for the industry. The commission has now whipped such operators to line with its strict regulations and once again, sanity and orderliness back to the industry.
The mantra of the present President Buhari’s administration is zero tolerance for corruption which the Kari’s tenure at the commission has keyed into. This is exemplified in the commission’s compliance with the requirements of the International Cooperation Review Group (ICRG) of the Financial Action Task Force (FATF).
The outcome of this is stricter enforcement of the AML/CFT Laws and Regulations compliance level, which has brought about 50 percent increase in compliance over the previous year. The result is evident in more diligent submission of companies’ Currency Transaction Report to the Nigerian Financial Intelligence Unit.
Another area of note of Kari’s era at the Commission is the increase in periodical inspection including on-site inspections, and off-site supervision that borders on issues like solvency, corporate governance, internal controls, claims, underwriting, record keeping, investment, systems and procedures, reinsurance arrangements, subsidiaries activities, anti-money laundering and compliance with rules and regulations.
With the frequent periodic inspection, the commission has been to enforce operators’ compliance to the Code of Corporate governance which provides for internationally accepted ways of doing business. The codes were released in 2009 the full enforcement commenced in 2016.
A major take-away of this restructuring within insurance industry entities that the codes have wrought. In areas where lapses had been evident, the Commission has perfectly protected and foster a healthy and sustainable insurance environment, by monitoring compliance with the laws, operational guidelines and regulations. The enforcement of the compliance with the codes has led to appointment of competent boards’ members and reputable audit firms to correct lapses and processes to ensure protections policy holders and also grow the industry.
Kari’s era marks a period of zero tolerance for unethical practices while the few that had flouted the industry statutory regulations have also been met with strict disciplinary actions. This has ensure that operators constantly play by the rules.
*Owing to its zero tolerance, the industry claims payment responsibility also improve following a riot act from the commission against delayed or non-payment of claims. This compelled Insurance Companies to improve on the claims obligation and settle all outstanding claims in their records to avoid severe sanctions. To underline its strong attachment to compliance to this directive, the Commission mandated all insurance companies to pay all genuine claims within 30 days of execution of Discharge Vouchers.
The strict implementation of this directive resulted in noticeable increase in the number of claims paid by insurance companies in 2017 to N140.76 billion and in 2018, N160 billion.
The Commission in 2016, equally restructured and repositioned its Complaint Bureau Department to better/promptly attend to complaints from members of the public. As a result of this proactive action, the Commission was able to settle 714 complaints through adjudication, amounting to claims pay-out of N7.14 billion by the respective insurance companies.
COMPLAINT HANDLING | 2015 | 2016 | 2017 | 2018 |
Complaints Received | 220 | 256 | 331 | 456 |
Cases Resolved via Adjudication Process | 108 | 96 | 253 | 355 |
Settlement Amount (N) Billion | 1.2 | 2.5 | 1.47 | 1.97 |
Evolving different initiatives and policies has also ensured in furthering the stability in the industry like the era of his predecessors, Fola Daniel. One of such initiatives is the Insurers’ Committee, a platform where all the segments of the industry meet to discuss and agree on issues.
Formed in November 2015, with membership including CEOs of insurance companies, trade associations, professional bodies and management of the National Insurance Commission (NAICOM), it has become very useful in strategising and articulating ways to drive sustainable growth of the industry.
It should also be noted that the commission under Kari drove further, the financial inclusion initiatives with market development initiatives that saw the evolution of micro insurance which target at bring more people into the insurance net.
With the release in January 2018 of the guidelines that set out the minimum standards for the conduct of Micro-insurance business in Nigeria with an outline of the duties and responsibilities of insurance intermediaries among others, NAICOM has taken a great leap at deepening insurance penetration and enhancing access to insurance services.
Under the initiative which shows that the commission is in compliance with the National Financial Inclusion Strategy of the Federal Government, two (2) full-fledge Microinsurance companies – GOXI Microinsurance Limited and Casava Microinsurance Limited in February and May, 2019 have respectively been licensed to operate as Composite Micro-insurance Companies while five (5) others are almost concluded.
Under Takaful Insuirance, the Commission in 2017, licensed two Takaful (2) Stand-alone Takaful Insurance companies while two others are already at advanced stages of registration.
The Commission has also worked on the guidelines for distribution channels that aim to improve the insurance value chain and attract new policyholders from among the burgeoning population.
The guidelines cover the following:
- Web Aggregators operational guidelines.
- State Governments implementation of Compulsory Insurance (or State financial advisers) guidelines.
- Independent Agent operational guidelines.
- Mutual Organization, association, community based Micro-insurance guidelines
In addition, the Commission has finalized with other Agencies such as the Nigerian Communications Commission (NCC), the Security and Exchange Commission (SEC) to explore and leverage platforms under their purview towards increasing access to insurances. It is also worthy to note that the Commission signed a Memorandum of Understanding (MOU) with the Central Bank of Nigeria (CBN) on Bancassurance to increase access to insurance products. Following the MoU, guidelines were issued by both regulators to their respective operators and so far, not less than Eighteen (18) applications have been approved for Bancassurance partnerships with the banks. Others are being considered for approval.
Another avenue through which to deepen insurance and provide employment opportunities is the State Insurance Producer (SIP) scheme. The SIP is proposed to be an agency of state governments licensed by the Commission to provide intermediary services as will be contained in our guidelines. The SIP will increase insurance penetration, increase revenue base of the state government and insurance profit, meet expectations of government in the areas of job creation, poverty prevention etc.
Agriculture has become the beautiful bride since the government decided to cut dependency on oil. To be able to feed the country which population runs into hundred of millions and also earn some money via export of the agricultural products, there is need to enhance the current capacity of the farmers and this could be done by providing finance to them. The commission under the Index Based Agricultural Insurance (IBAI) is collaborating with the Nigeria Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL) in delivering its mandate under the insurance pillar facility and in the implementation of NIRSAL’s agricultural strategy.
NAICOM in its efforts in enhancing Agricultural Insurance Risk Model has granted approval to 5 insurance companies to participate in the IBAI pilot scheme while additional two (2) insurance companies were approved in May 2019.
This was made possible with an Industry Working Group on Agricultural Index Insurance set up in February 2019 and comprising representatives of:
- Federal Ministry of Agriculture,
- Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL)
- Insurance Operators (6) and NAICOM
*Part of NAICOM’s mandate is to ensure adequate protection of strategic Government assets and other properties and provide advisory services on insurance matters. The Commission in furtherance of this, continuously provide advisory services to the Ministries, Departments and Agencies to set up insurance desks or units in their various offices and ensure compliance with the provisions of extant laws in all their insurance activities.
In addition, the Commission has established a Unit to assist Ministries, Departments and Agencies (MDAs) structure their insurances, and ensure all government’s assets are properly insured.
*In October 2017, the commission in its efforts to enforce compulsory insurance in states, inaugurated a Technical Committee (TC) to appraise the needs of the Federal Fire Service (FFS) and advise the Steering Committee on the deployment of the statutory Fire Service Maintenance Fund. The TC consists of representatives of NAICOM, the FFS, States Fire Services from the six geo-political zones of the country and the Nigeria Insurers Association (NIA). Furthermore, the Commission started liaison with relevant Ministries, Department and Agencies as well as State Government.
Strengthening Regional Cooperation and Collaboration with Peer Regulators and International Standard Setting Bodies:
The Nigerian industry started a foray into the Africa continent in the 2000s and this behoves on the Commission to strengthen its regulation to align with other countries to prevent difficulties in the area of supervision. NAICOM towards this, signed a Multilateral Memorandum of Understanding (MMoU) with West African countries (Ghana, Sierra-Leone, Liberia, the Gambia and later Guinea) to facilitate cross border supervision, information sharing, harmonization of standards and promote financial stability which gave birth to the establishment of the West African Insurance Supervisory Association (WAISA).
This led to the creation to the creation of the West African Insurance Supervisors Association (WAISA) under the auspices of the West African Monetary institute (WAMI) in February 2019 with the aim of increasing the pace of insurance integration in the West African Monetary Zone (WAMZ). The commission was very involved and at its maiden meeting in 2019. Nigeria’s Commissioner, Mohammed Kari is the Interim Chairman of the body.
Review of the Existing Legal Framework
In furtherance of the reform program in the financial services sector and, it became imperative that issues of the operating legal framework must be addressed to enable the insurance sector contribute optimally to the nation’s economic growth in line with the Vision 20:2020 objectives. The Consolidated Insurance Bill is one such issue. The Bill was reviewed in 2016 by a Committee set up by the Ministry of Finance and passed on to the Ministry of Justice for further action. The Bill consolidates and harmonizes existing legislations for effective and efficient regulation, supervision and sound insurance practice in Nigeria. The existing legal framework often creates regulatory inconsistencies, conflict of laws, etc.
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