NAICOM and Insurance Business Regulation in Nigeria, the Journey so far

NAICOM and Insurance Business Regulation in Nigeria, the Journey so far

By N.O. Opara
Director Supervision NAICOM, Abuja

Introduction
What is Regulation:
Regulation refers to Laws, Rules, Directives and Guidelines prescribed by authority, especially to control the conduct of  those to whom it applies.

Supervision involves monitoring and examining the activities and conditions of a regulated entity and its compliance with regulations

Central to insurance regulation is its classification as a public-interest business
to protect consumers of insurance products and ensure that promises made by Insurers are kept
Insurance companies sell complex promises
High potential for discrimination and abuse against customers

Virtually all aspects of insurance business practice – from licensing, operation and liquidation- are regulated in Nigeria

Insurance regulation is structured around several key functions, including company licensing, licensing of  intermediaries, product approvals, market conduct, financial/prudential regulation and consumer services

The major step at regulating the activities of insurance business in Nigeria was the report of J.C. Obande Commission of 1961 which resulted in the establishment of Department of Insurance Business in the Federal Ministry of Trade which was later transferred to the Ministry of Finance. The report also led to the enactment of Insurance Companies Act in 1961


Introduction
In 1992, the Nigerian Insurance Special Supervision Fund Decree was enacted, establishing a body known as National Insurance Supervisory Board (NISB), and taking insurance supervision outside the core civil service structure;  alsochanging designation of the Chief Executive from Director of Insurance to Commissioner for Insurance

In 1997, NAICOM was established with the full responsibility of regulating and supervising insurance business in Nigeria – thus replacing the previous regulatory organ – the NISB

The principal object of the Commission as stated in the NAICOM Act 1997 shall be to ensure the effective administration, supervision, regulation and control of insurance business in Nigeria.

NAICOM’s Regulatory Framework comprises:
Laws - Insurance Act 2003 and NAICOM Act 1997
Regulations – Regulation 2003
Operational Guidelines – Annual Operation Guidelines for the underwriters & intermediaries
Circulars
Directives



Object and Function of NAICOM
The main objects of the Commission as stated in the NAICOM Act 1997 can be summarized into three main headings;

Policyholders’ protection
Provision of adequate protection for policyholders

Financial safety and stability
To maintain efficient and stable insurance markets
Ensure a fair and safe market for profitable insurance business transactions

Market development
Providing enabling environment and infrastructures to facilitate deeper market penetration in the insurance industry

To discuss NAICOM and its journey so far in Insurance business regulation in Nigeria, We shall attempt to identify under these three main headings, key events/ programmes prosecuted by the Commission over the past years which have had significant impact on the  Nigerian Insurance Industry.
Journey so far – Policyholders’ Protection
Consumers’ education through seminars, workshops, sponsorship of TV/Radio drama, social media and other public enlightenment programmes

Introduction of insurance into school curricula – secondary & tertiary institution

Engagement of stakeholders including workshops for Independent Directors, Executives of Shareholders’ Association and Insurance Correspondence

Market conduct regulations – enforcement of Fair treatment of customers during pre-sales and after sales services
Risk pricing
Disclosure of information.

Eradication of fake Insurance products through  arrest, investigation and prosecution of fake insurance sellers

Premium Collection and Remittance (NPNC) Guidelines.

Issuance of Guidelines on Commission, rate and return premium

Strengthening reserving, sound accounting and disclosure requirements in line with IFRS (Liability Adequacy Test, Asset Liability Management)

Enforcement of prompt claims settlement

Establishment of Consumer protection unit – Complain Bureau

Insurance consumers forum in collaboration with Almond Production – a private electronic media producers

NAICOM’s intervention in failing insurance institutions – through Enforcement and Compliance Unit




Journey so far – Financial Safety and Stability

Recapitalization  and Consolidation of insurance industry in 2007

Enforcement of Minimum Solvency Margin and capital base requirements.

Providing leadership for the industry’s seamless transition to IFRS in line with Federal government Roadmap

Formulating policy on Premium Collection and Remittance (NPNC)

Investment regulations; including issuance of guidelines on divestments

Regulations on Investments  of Policyholders’ Funds

Improving and strengthening Solvency Regulation and ALM Requirements

Publication of compliance status of companies, particularly on rendition of quarterly financial returns and audited annual financial statements

Transiting to Risk Based Supervision and Consolidated Supervision (Group wide Supervision)

Issuance of Guidelines for development of Risk Management Framework.

Inflow of Foreign Direct Investments (FDI)  – AXA, Old Mutual, etc

Collaboration with other Regulators , including Issuance of NAICOM/PENCOM joint regulation on Annuity, FSRCC Framework and guidelines on consolidated supervision, signing MOU– National & International regulatory authority etc


Journey so far – Market Development
Market Development and Restructuring Initiative (MDRI)
       –     Enforcement of compulsory insurances
Eradication of fake insurance operators and.
Job creation

Signed MOUs with identified law enforcement agencies for the battle against fake insurance Operators

Financial Inclusion – Takaful and Micro insurance regulations. – poverty alleviation

Enforcement of local content development  particularly in Oil & Gas industry through the issuance of Guidelines on Oil & Gas Insurance business in Nigeria

Issuance of Guideline on “No Premium No Cover” to enhance the financial capacity of insurance companies to meet claims obligation

Review of Insurance Brokers Registration/Renewal processes by reducing the renewal turnaround from the previous average of about 4 weeks to only 1 week

Improved regulatory oversight through strengthening of NAICOM’s core operational department and their processes (e-Regulation project – ERP, LAN, Data centre and Access Control, Contact centre, Document Mgt, Attendance Mgt System, etc)

Capacity building for the Commission and the industry

Workshop for desk officers of some government MDAs- Office of Accountant General and Office of Auditor General

Full participation at the North-East economic summit held in Gombe – through hiring a stand to display the Commissions initiatives on Micro insurance and Takaful and opportunity of speaking to the audience

Hosting local and international conferences and seminars – National Insurance Summit held in Dec. 2014

Utilization of and collaboration with Trade Associations – NIA, NCRIB, ILAN, etc – to facilitate access to insurance products

Achieved growth in industry Gross Premium from less than N100billion in 2007 to over N300billion in 2014



Ongoing Projects/Initiatives
e-Regulation
Industry portal – Unic Identified
Supervisory Data Base
Business Process Mgt (for A & P and Inspectorate)
Enterprise Resources Planning (ERP) – Finance & Accounts and Admin. & HR)
Back-Up Data Centre in Lagos
Visitors Mgt System
IFRS

Risk Base Supervision
Risk Base Framework

Group Wide Supervision
Collaboration with regulators under the umbrella of FSRCC
MOUs with regulators in other jurisdiction
Supervisory college

Capacity building
Review of enabling Acts – Insurance Act
Conclusion
Some of the projects/initiatives mentioned in this paper are still on-going and will continue to impact positively on Insurance business regulation (IFRS, NPNC, MDRI, Consumers Education and Protection, Capacity building in core technical areas for both the Commission and the Industry)

Some others are classified as ongoing projects/ initiatives (RBS, Group Wide Supervision, …) and these are certainly going to attract greater attention to the Commission; going forward.

Insurance business regulation under NAICOM has witnessed a tremendous turn around for good as amplified by growth in industry Gross Premium Written of less than N100 billion in 2007 to over N300billion in 2014.

Given all the Projects/initiatives in place for effective Insurance  business regulation in Nigeria, it is very certain that the industry will sustain this established trend of growth and prosperity.