Toward Addressing The Immediate Challenges Of Regulation And Supervision Of Insurance Industry In Nigeria

It is no longer news that since January 2024, regulatory and supervisory activities at the National Insurance Commission (NAICOM, the Commission) have been grounded to a halt.  

Although NAICOM, like several other Federal Government institutions in Nigeria, has always been relatively inefficient, at the moment, the inefficiency at NAICOM has become a matter of serious concern to stakeholders, and this must quickly be addressed to save the industry from imminent collapse, and guarantee continued financial stability in the country.

The Insurance Industry: An Overview

The insurance industry is made up of companies that offer risk management in the form of insurance contracts. The basic concept of insurance is that one party, the insurer, will guarantee payment for an uncertain future event.

Meanwhile, another party, the insured or the policyholder, pays a smaller premium to the insurer in exchange for that protection in that uncertain future.

The insurance industry is made up of different types of players operating in different spaces. Life insurance companies focus on legacy planning and replacing human capital value, health insurers cover medical costs, and property, casualty, or accident insurance is aimed at replacing the value of homes, cars, or valuables.

Insurance companies can be structured either as traditional stock companies with outside investors or as mutual companies where policyholders are the owners. Owning equity in an insurance company may lead to dividends, inflation protection, and stable company revenue.

As an industry, insurance is regarded as a slow-growing, safe sector for investors. This perception is not as strong as it was in the 1970s and 1980s, but it is still generally correct when compared to other industries in the financial sector in Nigeria.

Insurance Industry Regulation and Supervision

The insurance business is regulated for reasons including financial stability, fair competition, and to protect the interests of policyholders. Insurance regulation involves the use of laws and regulations to guide the activities of operators and other institutions and persons in the insurance industry.

The principal laws for the regulation of the insurance business in Nigeria are the National Insurance Commission Act 1997 (NAICOM Act), and the Insurance Act 2003. Aside from these laws, there are also regulations and a set of guidelines for the supervision of the insurance industry.

Insurance supervision represents the actual monitoring of the activities of the insurance institutions to ensure they comply with the minimum standards set by the existing laws and regulations.

In Nigeria, regulatory and supervisory responsibility over the insurance industry is undertaken by the National Insurance Commission (NAICOM). NAICOM is established under the provision of the NAICOM Act, with the mandate of ensuring effective regulation and supervision of the insurance industry in Nigeria.

Challenges of Regulation and Supervision of the Insurance Industry in Nigeria

Ever since its establishment in 1997, NAICOM has faced challenges including funding, limited technical capacity, poor infrastructure, political interference, and corruption.

To alleviate the funding challenge, the government under the provisions of the NAICOM Act 1997, established the Insurance Supervisory Fund. This fund is composed of 1% of the gross (premium or commission) earned by the insurance institutions.

Similarly, NAICOM has always been faced with the challenge of attracting and retaining qualified and experienced staff. In particular, NAICOM has been unable to replace its staff as fast as they are being lost through retirement and death.

In recent times, NAICOM’s staff recruitment has been driven more by political considerations. Worse still, the Commission has been unable to guarantee its staff members the minimum training required for the job.

The Present Ugly Situation

The peculiar and ugly situation of the insurance industry in Nigeria is that, at the moment, no serious regulatory or supervisory activities are going on. This portends serious danger to the survival of the insurance industry in Nigeria.

Without effective regulation, the industry in Nigeria will soon collapse. Even with close monitoring of the activities of the insurance institutions, as it used to be, it was difficult to guarantee 50 percent efficiency in market discipline.

It follows logically, therefore, that in the absence of effective regulation, as is currently the case, it must be taken for granted that in less than no time, the insurance industry in Nigeria will finally collapse.

It should be recalled that in December 2023, the federal government implemented a 50% compulsory deduction from the revenues of some federal government revenue-generating agencies. NAICOM was erroneously considered a revenue-generating agency.

However, NAICOM is a purely regulatory agency that derives its funding from statutory levies paid by insurance institutions in Nigeria.  The NAICOM’s budget for 2024 is N10 billion. The federal government takes 50% of this, which is N5 billion.

Meanwhile, the current annual wage bill of NAICOM staff is N5 billion. This means NAICOM is only able to pay salaries and will have no operating funds. Worse still, the federal government announced in May 2024 an increase in salary for civil servants.

This means that NAICOM’s wage bill will also increase, the implication being that NAICOM may be unable to continue to deliver on its mandate, which is effective regulation and supervision of the insurance industry.

Already, the insurance industry suffers from low public confidence. Some insurers are known to have refused settlement of many genuine claims. A discrete inquiry at NAICOM revealed that no less than 8,000 complaints are lying untreated at NAICOM’s Complaint Bureau.

These are clear evidence of inefficiency that is driven by insufficient funding.

Proposed Immediate Solution

The government should immediately remove NAICOM from the application of the 50% compulsory revenue deduction. Also, NAICOM should consider urgent reforms, including staff rationalization, relocating its supervisory operations to Lagos, and building a strong IT capacity for regulatory services.

The government may think of increasing the percentage of the insurance supervisory levy, but this will certainly amount to indirect taxation on policyholders, which will further drive the masses into poverty.

Now is the time to save the insurance industry in Nigeria from imminent collapse. All hands must be on deck.

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