The new board of the National Insurance Commission (NAICOM) was inaugurated last week with a clear message from government that the era of subventions for the commission ends this year. This presents fresh challenges for the board and management of the commission, writes Nnamdi Duru
Governments across the globe regulate insurance industry by regulating the companies that design and sell insurance products and services to their citizens, starting with the registration and licensing of insurance companies.
For this purpose, the Nigerian government established the National Insurance Commission (NAICOM) to regulate and supervise the country's insurance market.
Ensuring effective administration, supervision, regulation and control of insurance business in Nigeria, NAICOM, which derives its regulatory powers from the NAICOM Act, 1997 and the Insurance Act, 2003, works towards "effective supervision of the Nigerian insurance industry for the attainment of a high ethical standard needed to position the industry as a leading market in the global economy."
The commission also seeks "to be among the leading regulators of the insurance sector in the emerging markets," even as it upholds transparency, integrity and efficiency. The newly-inaugurated NAICOM's 11-man board, chaired by the former Deputy Speaker of the House of Representatives, Prince Chibudom Nwuche, has the Commissioner for Insurance, Mr. Fola Daniel, and his two Deputies, Mr. George Onekhena (Finance) and Mallam Ibrahim Hassan (Administration) as members.
Also sitting on the board are the acting Director General of the Chartered Insurance Institute of Nigeria (CIIN), Mr. Kola Ahmed, representing the insurance industry, Mr. Kali Zagi, representing the Ministry of Finance, and Hon. Bashir Zubairu Birni Gwari from the House of Representatives.
Other members are Hon. Audu Sule, Prince Okechukwu Nonyelu and representatives of both the Central Bank of Nigeria (CBN) and Ministry of Trade and Investment. The board already had some problems waiting for it to tackle even before it was inaugurated, even as recent pronouncements of government, particularly the withdrawal of subventions to the organisation, present more challenges for the commission's board.
Government's Expectation The Minister of Finance, Dr. Ngozi Okonjo-Iweala, during the board's inauguration highlighted some of expectations of the federal government and Nigerians generally from the commission, and underscored the importance of the insurance industry in the economy. "We have to reposition the insurance sector in order to provide the services needed by one of the 20 largest economies in the world. Right now, insurance penetration is very low and we need to make insurance products very attractive because this is a source of capital which we have not tapped.
"We expect insurance companies to be strong enough to handle the expanding businesses in the economy. We therefore expect the new NAICOM board to produce results, both financial and value added to the economy," she said.
Minus Govt Funding Until now, the insurance regulator has been funded through budgetary allocation from the federal government. However, government said it would stop budgetary allocations to the commission starting from next year. The Minister of State for Finance, Yerima Ngama, said so during the inauguration of NAICOM's board in Abuja recently, saying the commission has come of age.
"From time to time, government supports the commission as its internally-generated revenue grows. But today, the industry has grown and is healthy; we believe that as from next year, NAICOM, just like the Central Bank of Nigeria and the Nigerian Deposit Insurance Corporation (NDIC), should be able to generate enough internal revenue to embark on their activities without any budgetary support from the federation account," he said.
"We have to reposition the insurance sector in order to provide the services needed by one of the 20 largest economies in the world. Right now, insurance penetration is very low and we need to make insurance products very attractive because this is a source of capital which we have not tapped," he added.
Revenue Sources The major source of fund for the commission flows from the Insurance Special Supervisory Fund (ISSF) Decree 20 of 1989, which sought to strengthen the manpower need of the Insurance Supervisory Board then. That law mandates all insurance companies to contribute 1 per cent of their gross earnings to the fund.
Aside from the about to be abolished federal allocation, NAICOM rakes in income from the one per cent statutory levy imposed on insurance operators. This is imposed on the gross premium income of insurance and reinsurance companies, gross commission raked in by insurance brokers and gross fees earned by loss adjusters.
Other sources include income from investments and money borrowed from such sources as may be approved by the board, fees and penalties payable by insurance institutions and other persons as well as all sums of money accruing to the commission by way of gifts, testamentary dispositions and endowments and contributions from any other source whatsoever.
The commission is also allowed to accept gifts of land, money or other property or things from persons or organisations within and outside Nigeria.
Funding Challenge The commission is now going to face the realities of having to fend for itself. Notwithstanding the optimism expressed by the commissioner for insurance, NAICOM will expectedly feel the shock of having to fend for itself for the first time.
The commission will incur some capital and current expenses including salary and wages as well as operational costs. This follows that the commission must put in place an aggressive revenue strategy to enable it meet its financial needs on its way to surpassing stakeholders' expectations.
The government has observed that a strong insurance sector is necessary to achieve the nation's vision of being among the top 20 economies of the world by 2020 so the insurance regulator will need more fund to get the infrastructure to enable it carry out its statutory duties.
Issue of Capacity Related to the funding challenge is the need to shore up the commission's human and technical capacity to brace to modern-day realities in financial regulation and supervision.
To meet and even surpass these expectations, NAICOM needs to shore up its human and technical capacities, which to some extent are in short supply. The commission needs to poach professionals from other fields to help in repositioning the organisation to effectively and efficiently discharge its regulatory and supervisory duties.
Ngama drew a parallel between NAICOM, CBN and NDIC and it is an established fact that these organisations boast of the best hands and infrastructure. They rank among the highest paying organisations in the economy.
The minister of state passed the message that the commission should benchmark other finance sector regulators in terms of human and technical capacity and of efficiency, effectiveness and delivery on set goals and here is the challenge.
Submission of Reports The problem of late submission, if not outright non-submission, of financial reports to the commission has reached a dangerous level. The fear of worried stakeholders was recently confirmed by the Senior Manager, Corporate Communications at NAICOM, Mr. Salami Rasaaq in a statement titled, 'Submission Status of 2012 Financial Statements of Insurance Companies as at September 12, 2012.'
He said out of the 57 insurance and two reinsurance companies under NAICOM's supervision, only 12 insurance companies and one reinsurance company have their financial reports for last year approved by NAICOM, eight and half months into the current year. According to him, 34 insurance companies and one reinsurance company so far made their 2012 financial reports available to the commission as mandated by relevant insurance laws, meaning that the remaining 24 insurance companies were yet to allow their regulators to sight their financial reports almost nine months into the year.
It seems the N5,000 fine per day after June 30 for failure to get their financials for the past year approved is out of tune with modern day inflation and as such many companies can afford to shield their financials from the prying eyes of their regulator perpetually at that cost. The commission need to review the N5,000 fine per day for companies who fail get their financial reports approved by the end of June of this year and going forward. It should also reduce the time allowed for submission of reports from June 30 to March 31, as being touted by the commission.
Insurance Law Review The federal government four years ago set up a committee headed by erudite insurance professional and lawyer, Prof. Joe Irukwu, to look at all insurance laws and make recommendations on how to upgrade and consolidate them into a new Act. Having consulted far and wide, the committee submitted its report to government and the industry is still awaiting the Finance Ministry to submit a bill in this regard to the National Assembly.
It is expected that the government should give teeth to the insurance regulator by ensuring that the new law in the making is rolled out in good time to ensure that all the necessary regulations and directives get legislative back-up as soon as possible. This will also encourage the commission to forge ahead with its mandate effectively and efficiently.
The need to empower the commission the more is now reinforced by the decision of the federal government to stop allocating resources to the insurance regulatory body.
The commission urgently needs to be given the necessary powers to bite and impose reasonable monetary sanctions on operators who run afoul of insurance laws, regulations and directives and the new board should brace up for this challenge.
Cautious Optimism The Commissioner for Insurance and Chief Executive of NAICOM, Mr. Fola Daniel, said the insurance regulator is satisfied with government's decision to stop funding the commission. "We are happy to be self-sustained. In NAICOM, we feel we should also be contributing to the national treasury; we can fund ourselves. In 2012, we remitted over N1 billion into the government treasury. The government's decision is a good thing for us because the government has many responsibilities pressing for attention. We believe that the resources being allocated to us can be channelled elsewhere," Daniel said.
Meanwhile, in addition granting the commission financial autonomy and benchmarking it with CBN, NDIC and other regulators in the finance industry, government should define the terms of financial autonomy it is granting to the commission to reflect full autonomy like these other regulators are enjoying. This will, in addition to boosting the commission's morale, make it more effective in the delivery of its mandate.
Source: ThisDay
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