The Concept of Regulation“regulation provides a framework for the supervision of an industry to ensure the

growth and survival of a healthy and viable industry” Irukwu (2009)

• to ensure that the business is conducted in accordance with sound insurance principles;

• to ensure that insurance (institutions) are managed by competent, reliable and qualified officers; and

• to ensure that insurance (institutions) are viable and adequately capitalized so that they are able to meet their financial obligations to their clients and the insuring public.

The Role of NAICOMNAICOM specific powers and responsibilities as stated in NAICOM Act 1997;•Establish standards for the conduct of insurance business in Nigeria•Approve rates of insurance premiums to be paid in respect of all classes of insurance business•Approve rates of commissions to be paid in respect of all classes of insurance business•Ensure adequate protection of strategic Government assets and other properties.•Regulate transactions between insurers and reinsurers in Nigeria and outside Nigeria

The Role of NAICOM ….contd

• Act as adviser to the Federal Government on all insurance related matters

• Approve standards, conditions and warranties applicable to all classes of insurance business

• Protect insurance policy-holders and beneficiaries and third party to insurance contracts.

• Contribute to the educational programmes of the Chartered Insurance Institute of Nigeria and the West African Insurance Institute.

Furthermore, s.86 of the Insurance Acts 2003 stipulates that NAICOM shall be responsible for the administration and enforcement of its own provisions.

RECAPITALIZATION – A TOOL FOR GROWTH IN THE INSURANCE INDUSTRY

Under the 2003 Act, the minimum capital for insurance companies was: N150m Life

N200m General N350m Composite N350m Reinsurance

Period Company General Life

1960 - 1975 25 80 50,000 PoundsN100,000

100,000 PoundsN200,000

Period Company General Life Composite Reinsurance

2005 103

49

N3b N2b N5b N10b

The Impact of Recapitalization on the Insurance Industry• Industry became stronger and less fragmented. • The industry was also placed in a strategic position to

benefit from government policies like Nigerian Content Act 2010, Cabotage Act 2003.

• From 2003 Gross Premium increased from N55.9billion to N258billion in 2014.

• Growth in premium income enhanced capacity to retain higher risks.

• The industry contribution to the GDP rose from 0.67% in 2012 as indicated by Swiss Re to about 5% in 2014.

Risk Based Capital (RBC) RequirementThe model was developed by the National Association of Insurance Commissioner (NAIC) in the US, in response to the large scale insolvency of the 80s and 90s.

It offers a more dynamic formula that would vary with each particular company based on its operations rather than a generic review.

There are two components of the RBC:•RBC formula to establish hypothetical minimum capital level required by a company based on its operations. This is then compared to the actual capital maintained by the company.•RBC model law grants automatic authority to the regulator to take specific action based on the level of impairment.

The RBC Early Warning Four Levels of Actions

• Company Action Level

• Regulatory Action Level

• Authorized Control Level

• Mandatory Control Level

Solvency IISimilar to Basset II of the Banks, is intended to impose a single license (EU Passport) for companies to operate in all member states.Pillar 1 – Quantitative Capital RequirementThere are two components here:•Solvency Capital Requirement (SCR): This is the capital required to ensure that a company would be able to meet its obligations over the next 12 months. Then the SCR is the amount required to meet the Technical Provisions with a probability of at least 99.5%.•Minimum Capital Requirement (MCR): This represents the minimum capital below which the regulator would intervene. It is expected to be at 85% probability of adequacy over twelve months period. It ranges from 25% – 45% of SCR.

Solvency II

• Pillar 2 – Qualitative RequirementThis is about internal controls and corporate governance.

Risk Management of insurers and effective supervisory processes are also part of this.

• Pillar 3 – Reporting and DisclosureThis entails public disclosure on business overview,

performance and governance. Other matters to be properly disclosed include the valuation basis employed for solvency purpose. There would also be Non-Public disclosure on risk and capital management.

Pension Reform Act 2004The provision of the Pension Reform Act 2014 highlights the different developments in Insurance;•The new Pension Reform Act, 2014 stipulates severe sanctions for employers that fail to take up life insurance cover for their employees unlike the provisions of Pension Act of 2004.•Section 4(5) of the Pensions Reform Act 2004 provides that “every employer shall maintain a Group Life Insurance policy in favour of each employee for a minimum of three times the annual emolument of employees and that premium shall be paid not later than the date of commencement of the cover”•Section 6b of the Act expressly states that an employer that fails, refuses or omits to make payments when due shall be liable for payment of claims arising from the death of such employee for failing to arrange life Insurance cover. •Section 4 of the Pension Reform Act 2014 changed the rate. This section differs from section 9(1)(a) and (c) of the 2004 Act which pegged employers/employee contribution in public sector to 7.5%.

Consumer Protection

• The National Insurance Act, 1997 section 8 (a) gives power to the commission to establish Complaint Bureau.

• NAICOM Complaint Bureau also has numbers and email address customers can reach the commission.

• NAICOM assigned intra industry dispute to Nigeria Insurance Association (NIA).

• NIA in 2012 launched Nigerian Insurance Industry Database (NIID).

THEMATIC Guidelines

In 2011, NAICOM introduced thematic guidelines to;–direct practice within the Insurance Industry – support the change in its regulatory

framework.The thematic guidelines was formulated on a risk-based framework rather than compliance framework.

INSURANCE PREMIUM COLLECTION & REMITTANCE

• Insurance Act 1991 introduced the concept of payment of premium as a condition precedent to a valid contract.

• This provision has survived to date as S.50 of Insurance Act 2003

GUIDELINES FOR MICRO INSURANCE OPERATIONS IN NIGERIA

The main objectives of this guideline are to:•Provide minimum standards for the conduct of Micro insurance in Nigeria•Ensure consumer protection •Establish general features of Micro insurance. •Establish duties and responsibilities of Micro insurance operators and service providers; and•Establish conditions for entry and exit from the Micro insurance market.

OPERATIONAL GUIDELINES (INTERMEDIARIES)

• S. 49 of the Insurance Act 2003 states that Insurance Companies are not expected to transact businesses with unregistered brokers and non-compliance attracts a fine of 250,000.

Challenges;• duplication of Broker’s registration.• delay in the process of registration and renewal

of licenses. • pressure of unutilized capacity.• preference to risk sanctions.

OPERATIONAL GUIDELINES (INSURERS & REINSURERS)

This guideline consists of filing of annual returns & accounts, technical processes surrounding Insurance business such as rates & rebates, details of foreign insurers, corporate governance & compliance with anti-money laundering laws.

KNOW YOUR CUSTOMER GUIDELINES

• It stipulates having sufficient information about customer and making use of that information.

• It minimizes the risks of being used for illicit activities.

• It provides protection against fraud, reputational and financial risks and enables individual insurance institutions to recognize suspicious activities.

ANTI-MONEY LAUNDERING AND COMBATING THE FINANCING OF TERRORISM (AML/CFT) GUIDELINEIn accordance with the Money Laundering (Prohibition) Act 2011, NAICOM introduced a guideline to all operators. Insurers are expected to:•identify their customers and business before entering into business relationship; and•submit a cash transaction report to the Nigeria Financial Intelligence Unit(NFIU) within Seven days for any cash transaction in excess of N1 Million for individual and N5 million for a corporate body. However a Nil report should be filed in the case where there is no transaction in excess of these amounts.

GUIDELINES FOR OIL & GAS INSURANCE BUSINESSKey objective of this Act is to•increase local insurers’ participation in the Oil & Gas sector and thus improve local capacity.•facilitate compliance with the Nigerian Oil & Gas Industry Content Development Act 2010 as well as ensure value-added service(s) within the context of the Insurance Act 2003. This guideline comprises the general requirement for insurers, local capacity for Oil & Gas policies, reinsurance arrangements, participation criteria (Insurers & Brokers), Captives & Prudential guidelines.

TAKAFUL OPERATIONAL GUIDELINESIn pursuant with section 7 of the NAICOM Act 1997; •Takaful-Insurance is a form of insurance which incorporates elements of mutuality and ethical finance considerations and is open to all people regardless of faith and background.

Takaful-Insurance is based on two principles: •Tabarru (donation/contribution)–is a donation covenant where all participants agree to mutually support each other and is the basis of participant’s contributions into Takaful-Insurance Fund. •Ta’awun (co-operation) – is the established Islamic concept of mutual assistance and is the basis on which participants willingly agree for the Takaful-Insurance fund to be used for the mutual benefit of all participants to meet eligible claims.

RISK MANAGEMENT GUIDELINENAICOM introduced risk management guidelines to promote the growth, minimize threats and maximize opportunities.Highlights of the guideline;•Establishment of a risk management framework which takes into accounts the company’s risk management strategy, policy, procedures and controls.•Adoption of a three line of defense approach which includes risk ownership(board, senior management, line management & staff) risk control and audit.

THE NEED FOR CODE OF GOOD CORPORATE GOVERNANCE FOR THE INSURANCE INDUSTRY IN NIGERIA• Corporate governance broadly refers to the

mechanisms, processes and relations by which corporations are controlled and directed.

• Governance structures identify the distribution of rights and responsibilities among different participants in the corporation (such as the Board of Directors, Managers, Shareholders, Creditors, Auditors, Regulators, and other Stakeholders) and includes the rules and procedures for making decisions in corporate affairs.

• The codification of Corporate Governance is not new to Nigerian Market. The Securities and Exchange Commission (SEC) has code of corporate governance for public companies.

CONCLUSIONWe need to do a lot more to bring some of the provisions of the law in line with international best practices and strengthen the market. The six compulsory insurance namely:

• Motor Thirty party liability – under section 68 of the Insurance Act, 2003

• Employers Liability -under section 9(3) Pension Act 2004• Employers Compensation -under section 33, Employees

compensation Act.• Occupiers Liability -under section 65, Insurance Act, 2003.• Builders liability -under section 64, Insurance Act 2003 and

the Lagos state Building Control Law 2010• Health care professional indemnity Act -under section 45 of the

National Health Insurance Act 1999,all exist on paper. NAICOM has tried to harness these in the Market Development & Restructuring Initiative (MDRI). The Commission however is not in a position to effectively to enforce the laws as is common in developed countries. It is left to the industry to take up the challenge from here.

RECOMMENDATIONS• NAICOM is encouraged to pursue the

company specific capital requirement models• Balancing act of enforcement• Operators should focus on the overall interest

of the Industry and Nation • There should be more effective

monitoring/control by the regulators against defaulters.

Thank you for your time.

Olusola Olatayo Ladipo-Ajayi27 July 2015