Insurance- Experts Seek Operators Cooperation With Regulators

Yemisi Izuora
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Insurance experts have urged risk managers at multinational corporations to cooperate with regulators to build cross-border insurance programmes by introducing more uniform regulation.

They should also play by the current rules and help build trust, said a senior broker at Commercial Risk Africa’s Risk Frontiers Sub Saharan Africa event in London.

The message was delivered by Praveen Sharma, global leader – insurance regulatory & tax consulting practice at Marsh.

He told delegates that regulators, in Africa at least, are willing to be flexible and work with companies.

But all too often regulators find out that the rules they introduce to allow exemptions from non-admitted rules, for example, are not followed.

This leaves a bad taste in the mouth and will not help national supervisors look kindly on efforts to harmonise insurance rules on a regional or even international basis, suggested experts at the event.

Mr Sharma said existing rules are broken too often and this does not help with the harmonisation effort in Africa and elsewhere.

“Regulators in African countries are keen to work with big multinationals and keen to ensure that they are properly insured and allow regulatory flexibility. Unfortunately you find too often that companies break the rules and the regulators get very upset,” said Mr Sharma.

“For example the Kenyan regulator recently reminded oil and gas companies to apply for non-admitted insurance because they were aware that companies were not following the rules. The regulations are there and need to be complied with. Companies need to approach the regulator in good time, it’s all about strategy and planning,” explained Mr Sharma.

Andreas Berger, member of the board of management at Allianz Global Corporate & Specialty, agreed with Mr Sharma.

He said, “If you have non-admitted cover in most cases it is only after the event that the regulators and government work it out, especially in the case of high profile risks. This leaves a bad taste. You have to ask yourself what needs to be done to make this practical and easy to handle,” said Mr Berger.

Despite these warnings, experts agreed that of all the emerging regions Africa could be the most sensible place to begin the process of harmonising insurance rules.

The leading international risk management federations-Ferma in Europe, RIMS in the US and Parima in Asia-are currently pressuring the International Association of Insurance Supervisors (IAIS) to make changes to insurance regulation around the world.

Africa is seen as a good place to encourage more harmonised regulation because the French-speaking nations of the continent have already signed up to a common code-the CIMA code-that makes life easier for everyone.

This code was introduced in 1995 to tackle poor regulation, inadequate solvency standards and corporate governance across the region.

The CIMA code introduced a new and improved set of standards and oversight to which national supervisors have all signed up. It operates on a similar basis to the European Union Freedom of Services approach.

This system requires that 25 percent of any risk and premium is retained locally. The remaining 75 percent can be reinsured into a global programme or foreign reinsurer.

In October 2011, Article 13 of the CIMA code was introduced that requires cash before cover or a “no premium, no coverage” policy.

This was introduced because policyholders often did not pay their premiums until they suffered a loss or the premiums were paid to brokers who in turn delayed payment to insurers.

These unpaid and delayed premiums continued to appear in insurers’ books and were also often carried over from one year to the next. This meant that insurers appeared to be in better financial shape than they actually were.

In July 2011, CIMA issued a circular that said insurers had three years to recover all arrears and remove irrecoverable payments from their books.

The circular added that, as of December 2014, all arrears that appear in the books of insurers would be considered “of no value”.

There has been talk of a similar effort among insurance regulators in the primarily English-speaking part of Africa to the east and south of the CIMA zone. In 2011 South African president Jacob Zuma proposed the creation of an African Grand Free Trade Area. It was suggested that this effort could include the introduction of a CIMA-style code.

Insurance market professionals in the African and international market have told Commercial Risk Europe’s sister paper Commercial Risk Africa that they believe such a move would help assure local regulators that domestic markets are being given a chance to develop while at the same time enabling insurance buyers to access international capacity for their risks.

Experts agree that the adoption of such a system beyond the CIMA zone would help bring clarity and consistency, as well as greater assurance that insurance programmes are compliant.

Mr Sharma told delegates at the Risk Frontiers Sub Saharan Africa event yesterday that now is the time to act.

The global programmes expert said that the CIMA code works and should be extended out across the African continent. It could even act as a catalyst for global change, he argued.

“The CIMA code is a Freedom of Services type system and I believe that this could be easily replicated throughout Africa’s English-speaking countries to ensure that standards are not compromised and attract investment and growth,” said Mr Sharma.

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