‘NAICOM To Become Leading Regulator Of Risk Based Supervision In Africa’
Director Inspectorate, NAICOM, Mr Agboola Pius
The National Insurance Commission (NAICOM) said having commenced the implementation of Risk Based Supervision (RBS) model in Nigeria, it will soon become the leading regulator of RBS in Sub-Sahara Africa.
RBS was introduced by NAICOM 10 years ago as against Ruled Based Supervision to carry out supervisory or regulatory activities with a risk focus. It is for the purpose of efficient risk management of resources by insurance companies and achieving maximum output.
RBS Provides regulatory risk ratings for the organization based on the assessment of the inherent risks of the organization’s significant activities and the quality of its risk management control functions.
It also promotes appropriate regulatory action in line with the risk profile of the organization; Facilitates the development of benchmarks that will inform best industry practices for dealing with various risk levels; and Considers external factors affecting not only institutions but financial system as a whole.
In his presentation titled “Risk Based Supervision Implementation – The Commission’s Perspective ” at the 2022 retreat for financial Journalists with the theme: “Improving Insurance Access through Market Development and Innovation in 2022 and Beyond” in Uyo, Akwa Ibom State recently, the Director Inspectorate, NAICOM, Mr Agboola Pius, gave insights on the Commission’s journey so far towards full implementation of RBS in Nigeria.
According to him, “the underlying aim of modern Insurance Supervision is to identify problem early, act promptly and apply effective intervention and one of the effective tools to achieve this objective is Risk Based Supervision.
“Risk Based Supervision is the deployment of resources where it matter most focusing on the risks of the organisation or activities. Alternatively, it is the carrying out of supervisory/regulatory activities with a risk focus for the purpose of efficient use of resources and achieving maximum output
“It focuses on the risks associated with a particular business model rather than compliance with a set of rules which is known as compliance based; it is process oriented, assessing institution’s risks and continuously update the risk profile; Places reliance on the effectiveness of risk management control functions; Requires extensive use of expert judgement, critical thinking and forward looking perspective…”
Agboola said the intension and effort of the Commission to shift to Risk Based Supervision regime started about ten (10) years ago followed by the issuance of a RBS Road Map in 2016.
He said, the emphasis has been on creation of awareness and issuance of policies/ directives which are regarded as the drivers of RBS implementations which include Enterprise Risk Management and internal control – Guideline on Risk management Framework was issued in 2012; Good Corporate Governance – recently issued Code of Good Corporate Governance.
Others are Market Conduct Guideline issued in 2015; Prudential Guideline issued in 2015; The International Financial Reporting Standard (IFRS) for Insurance Institutions in Nigeria; The directive of the Commission to comply with Actuarial Service requirements – 2017 to issue a financial condition report of their companies as at December 31, 2016 and not later than March 31, 2017. Compliance on this directive is to continue and directive of the Commission for operators to comply with Risk and Solvency Assessment (ORSA) report annually with effect from 2017.
In order to have smooth implementation of RBS, Pius said the commission had conducted trainings for its staff, using competent and experience experts, adding that NAICOM had also developed a framework and produced an inspection manual on RBS.
“NAICOM in collaboration with Toronto Centre also organised a virtual programme for Sub-Sahara Africa between Feb. 28 and March 4.
“The commission in its effort for a robust RBS regime, recently issued the 2022 code of good corporate governance and guidelines.
“A pilot run of RBS examination has also been done using five insurance companies, amongst others.
“With the presentation made, it is evident that NAICOM has not only commenced the implementation of RBS but would be, very soon become the leading regulator on Risk Based Supervision in Sub-Sahara Africa,” he said.
Earlier, in his paper presentation, Pius listed credit risk, market risk, liquidity risk, insurance risk and operational risk as the key in the NAICOM framework .
Others include legal, regulatory, compliance, reputational and strategic risks.
The director noted that one of the effective tools to achieve the underlying aim of modern insurance of identifying problem early, act properly and apply effective intervention is RBS.
He charged insurance firms to place much identification on their inherent risk and the effectiveness of the control function.
“Strong capital and good earnings are not substitutes to effective risk management controls. if you have not placed emphasis on Identification of your inherent risks and the effectiveness of your control functions before now,, you need to do so immediately,” Agboola advised.
