NAICOM moves to shut insurance firms over claims failures

•Lists factors limiting sector growth

By Cynthia Alo 

A new development has emerged that the Risk Based Supervision (RBS) enforced by the National Insurance Commission, NAICOM, to assess systemic risk that affects the industry as a whole is less likely to impact the recapitalisation of the industry.

NAICOM had introduced the approach when recapitalisation exercise was halted by litigation, to help strengthen the recapitalisation of the industry.

Vanguard had reported that the Commissioner for Insurance, Mr. Sunday Thomas, while speaking on RBS said that the supervisor is expected to assess systemic risk that affects the industry as a whole, and then analyse the level of risk specific to each firm to the insurance sector.

But a research by Afrinvest, a Lagos based investment house, tagged, ‘Afrinvest Insurance Sector Update Report 2022’, stated that instead of introducing risk-based capitalisation, NAICOM should assess the impact of the current recapitalisation programme on the sector, to drive a more balanced strategy.

According to the report, failure to do this could keep investors on the side-line, thereby depressing investors’ sentiment towards the sector.

Meanwhile the report reveals that in 2022, profit margins will be pressured downward.

It says that this is predicated on the deteriorating effect of rising inflation rate (through higher claims particularly in the non-life business) and an increase in health maintenance organisation (HMO) policy pricing.

The report stated: “Furthermore, we foresee mounting pressure on underwriting margins as the inflationary effect trickles into insurance policy acquisition and maintenance costs thus raising underwriting expenses. Coupled with the rising risk of global recession, we see the insurance sector.”

The report stated further: “The sector’s insurance penetration (measured as Gross Premium Written, GPW, as a percentage of GDP) has remained relatively unchanged at 0.3%  in 2021 compared to South Africa (13.6%), Brazil (4.0%), Morocco (3.9%), India (3.8%), and Kenya (2.5%).

“Similarly, insurance density (measured as GPW per capita) is estimated at $6.3 compared to peers – South Africa ($786.3), Brazil ($342.3), Morocco ($119.7), India ($72.5) and Kenya ($41.3).”

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