In transiting to Risk Based Supervision (RBS), a new policy in the insurance industry, expected to boost capacity and enhance risk management, companies will be facing compliance tasks due to a shortage of human capital, turnaround time analysts say.
Consequently, the industry will be challenged to localise the policy model, particularly on the regulator side, to be able to align with size of market, structure, as well as business environment, given that the policy is new and alien to the market.
Risk Based Supervision, the National Insurance Commission said, will be introduced in the industry in the second quarter of 2016, first with a transition timetable which will target ending common capital regime for insurance companies.
Experts describe RBS as policy that ensures insurance companies undertake business risks based on the size of their capital.
Analysts who spoke with BusinessDay, said RBS is the way to go and aligns with the international best practice of effective risk management model to build capacity for the sector, protect policy holders and the investing public.
Benson Uwheru, senior manager, Advisory, Ernst & Young (EY) said “The practical challenge the insurance industry is going to face in transiting to RBS is timing. “How do we get the sense of all these guidelines and all that is required, the practical challenge of putting all that in place in such a short span of time?
“Timing and implementation of regulatory changes top the list of regulatory-related challenges that the industry will face, as it embarks on RBS, Uwheru said.
According to him, finding the right talent and technical capacity will pose its own challenge. “It is about talent – getting the right type of people who will able to implement the policy in a quick turn-around time.”
Uwheru also observed that this requires a firm to have the right kind of talent in the insurance market, from budget managers, HR consultants and technical people. Everyone must understand their roles to be able to have smooth transition to RBS.
Sujay Shah, associate director, Insurance and Actuarial, EY, said there is the challenge of localisation. “You know what they say, adopt global best practice and localise it. How does it fit in here, what model do we use? We have to bring the guidelines and localise it. Interpret it to reflect the size, the structure and the nature of our businesses in Nigeria.”
According to Shah, RBS will help restore the confidence and trust for the insurance industry. “We have a trust issue and this is how we can bridge the gap.”
Shah stated that it is a signpost to the fact that Nigerian insurance companies are following and implementing global best practices. “It is truly a model that helps us to reposition the insurance industry to meet the demands and risk exposures in the sector.”
According to EY,” the onus lies on the insurance companies to prepare for that supervision, which simply means that they will be assessed based on their risk profile. Some of the assets that they carry also will be charged according to the risk of those assets. I think it is long overdue. Investors will appreciate it and also it is healthy for the industry”, the agency observed.
“We should be aware of the purpose of risk based capital requirements; it is really for the insurance company, from the CEO to the lowest staff on the ladder, to understand what impact and what risk is associated with certain classes of business they carry,” Shah observed.
“The rationale will be that you start making your underwriting and your strategic decisions based on risks assessment. It is trying to change the thinking of how to underwrite business. This is saying that each transaction should be looked at on a risk based decision.”
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