THE insurance industry is estimated to have lost as much as N200 billion to the meltdown in the stock market, as such the National Insurance Commission (NAICOM) should carry out an industry wide capital adequacy verification exercise to evaluate the stability of the sector.

In its report titled, “The Nigerian Insurance Sector: Unlocking Value through enforcement of compulsory insurances” BGL Plc published that the Nigerian insurance industry may have been substantially affected by the protracted financial system downturn in the country as it has been estimated that the industry has lost as much as N200 billion to the meltdown in the stock market.

According to BGL “This has eroded the gains of the recapitalisation exercise as it may have impacted seriously on the shareholders’ funds of all the players in the industry.”

According to the report, there is also the immediate need to effect the move from compliance based supervision to risk based supervision upon which the new accounting standards were based, adding that it was observed that about half of the insurers were unable to meet the June 30, 2011 deadline for the submission of their 2010 financial accounts.

Financial results

The level of compliance with regulatory guidelines in the insurance sector is low. It is characteristic of the industry for financial results of many of the players not to be released until after six to ten months of their financial year end.

Enforcing the compliance of the six compulsory insurance policy, alongside the effectiveness of the provision of the Local Content Act are key success factors to the growth of the industry, the report maintined.

“NAICOM claimed to have constituted the enforcement teams that are made up of the Police, Vehicle Inspection Office (VIO), Federal Road Safety Commission (FRSC), Fire Services and Planning authorities among others; however the models of enforcement remain ambiguous. The adoption of the model for enforcing motor insurance would be more effective at enforcing the other classes of insurance.”

BGL noted that the Builder Liability Insurance and Occupier Liability Insurance could be incorporated into land and property registration procedures and annual tenement rates payments. Medical Professional Liability Insurance is easier via partnership with NHIS accreditation processes for medical establishments.

The Employers’ Liability Insurance and Statutory Group Life Insurance may require NAICOM to partner with the NASB and CAC to add this compliance information as part of statutory disclosures in financial reports of affected companies.

“Among the insurance operators, capacity building in terms of capital adequacy and requisite skills acquisition are two key areas that need to be urgently addressed. Considering the changing investment landscape in the wake of the private sector driven approach to infrastructure development, imminent reform of the petroleum industry and the local content law, continuous capital increase would be required by players to be able to take on large underwriting opportunities.

The industry must also develop strong skills in fund management as well as the ability to participate in highly specialised investment projects. Finally, the industry needs to move beyond the continuous use of the brokerages and agency channel of distributing products to improve innovation as well as the industry’s image. Operators also need to scale up market and product developments processes.”

“A substantial body of evidence suggests that a robust and efficient insurance market will go a long way towards improving the country’s financial sector depth and efficiency.

The insurance sector can leverage on its institutional investor role in offering important services for which it has comparative advantage. The hurdles however appear numerous but they are not insurmountable if the regulators and players are willing to play by the rules and focus on the identified key issues.”