The insurance industry regulatory body , the National Insurance Commission (NAICOM) said it has begun implementation of Risk -based Supervision (RBS) model in the Nigerian insurance industry.
Deputy Commissioner for Insurance (Technical), Mr. Mohammed Kari who disclosed this in Lagos said the process will involve critical review of board of directors and senior management staff of various insurance companies and the management and the structures and processes of the various operating companies.
The risk-based supervision, according to the World Bank, is a supervision approach that considers each of the risks that companies face and through a structured process, identifies the risks that are most critical to the financial viability of the institution.
Under the model, the supervisory on-site review process looks at the management of the key risk areas of a company and focuses attention on the critical net risk exposures.
Introduction of the model in insurance industry is a sharp migration by the NAICOM from the hitherto compliance-based supervision model and is part of its steps to build globally competitive industry .
He said introduction of the new and global accepted standard of supervision will ensure that the board of directors and management of insurance firms play their legal role of owing up to the effective management of their companies.
According to Kari, in doing this, the commission would be guided by the spirit enshrined in the principles laid down in the Solvency II framework companies and that this would see the commission administering more strictly, fit and proper test in the appointment of company officials at all levels.
“The directors must take responsibility for managing risks in their companies and maintaining adequate capital to absorb any losses that may arise. The use of appropriate professionals in determining risk appetite of the company, financial provisions to be made and suitable structural adjustments shall be sacrosanct”, Kari stated.
The deputy commissioner said, in administering the new supervisory regime, market operators, mainly the Nigeria Insurers association (NIA) and its members would be required to put in place and assess their skills and readiness in terms of awareness and risk management culture, corporate governance practices, board and management commitment, internal audit and controls ,relevant information technology infrastructure and financial analysis .
According to him, the commission is making all efforts to build the appropriate expertise to risk management practices and model, effective compliance function, regulatory reporting and compliance, training on the risk based supervision basis as well as ensuring collaboration between the industry operators and the supervisory body in implementing the new model.
“The market association shall be required to participate actively in the implementation process and make contribution through Industry Working Groups (IWGs) as recommended in the RBS roadmap.
“We need to once more emphasis the need for market collaboration as we go forward, these changes cannot be surmounted by operators individually, resources, studies and experience need to be shared”, he stated.
He said the commission had shortly after release of the frame work on the model,in August 2014 written to the insurers through their market association NIA to nominate members of of the association at the council level to serve on the industry consultative committee.
Furthermore, he said though the industry failed to react in this regard, the commission is still waiting for their response.