INSURANCE REGULATION IN THE
AFRICAN ENVIRONMENT
Presented By:
Mr. Fola Daniel
Commissioner for Insurance, Nigeria
National Insurance Commission,
Abuja-Nigeria
1
ISSUES FOR DISCUSSION
• INTRODUCTION
• THE AFRICAN INSURANCE ENVIRONMENT
IN PERSPECTIVE
• INSURANCE REGULATION IN AFRICA
• THE NEED FOR INSURANCE REGULATIONS IN AFRICA
• INSTITUTIONAL FRAMEWORK
• REGULATORY MODEL
• DEVELOPMENTS IN THE NIGERIAN INSURANCE MARKET
• CHALLENGES
• WAY FORWARD
• CONCLUSION
Mr. Fola Daniel, Commissioner for Insurance, Nigeria
2
INTRODUCTION
It will not be out of place to state from the beginning that in the
complex field of risk management, insurance has become universally
recognized and accepted as the most efficient response to rescue risk
related issues. As a result, the position today is that no modern
economy can survive or prosper without the active support of a
disciplined and viable insurance industry.
This is evident from the 2007 World Insurance Market Report
published by Sigma Publication where the 15 major economies have
significant contributions from insurance sector to their GDP ranging
between 5-15%.
It is gladdening to note that South Africa is amongst the first 5 of
such economies
Mr. Fola Daniel, Commissioner for Insurance, Nigeria
3
INTRODUCTION cont.
• Within the last decade, certain factors have made
unprecedented positive impact on global growth and
development of insurance. These include liberalization of
world trade, increasing efficiency, advances in Information
Technology and the integration of world financial system
which now provide unparallel economic, cultural, and
recreational opportunities.
• These developments have created new opportunities for
insurance business in Africa; as the African market is now
open for global exploration and competition. Conversely, this
has poses new challenges for insurance regulation in Africa.
Mr. Fola Daniel, Commissioner for Insurance, Nigeria
4
INTRODUCTION cont’d
• The key objectives of Insurance regulation include the
following:
maintain efficient and stable insurance markets
fair and safe market for profitable insurance
business transactions
Provide adequate protection for the policyholders.
In a recent survey of the South African Insurance market by
Pricewaterhouse Coopers Inc ,it was concluded from responses of the
27 Companies surveyed that regulations have created a fairer
playing-field for institutions to reach their growth targets.
Mr. Fola Daniel, Commissioner for Insurance, Nigeria
5
THE AFRICAN INSURANCE ENVIRONMENT
IN PERSPECTIVE
• The African continent is characterized by




high level of illiteracy,
high rural population,
poor infrastructure,
poverty etc
• The African insurance markets comprise of





•
•
•
•
•
insurers (Underwriters),
Reinsurers, Brokers,
Loss Adjusters,
Actuaries and
Agents.
There are risks of potential abuse
Low level awareness
poor market penetration
Low operating capital
Low capacity for retention and acceptance of foreign risks
Mr. Fola Daniel, Commissioner for Insurance, Nigeria
6
INSURANCE REGULATION IN AFRICA
• Insurance regulation simply connote laws, rules or guidelines
through which governments controls the practice of insurance
business.
• Regulation of insurance in Africa is mainly through various domestic
legislations creating regulatory authorities/agencies to superintend
insurance businesses. For example,
• Nigeria National Insurance Commission,
• South Africa, the Financial Services Board;
• Zambia here we have Pension and Insurance Authority; etc.
The common denominator of all these institutions is that they were
established by the Governments of the domestic markets.
• These reflect both the need to address particular problems and
possible abuses in the business, as well as ensure the development
of insurance market. The key objectives of government interest in
the regulation of insurance industry include:
Mr. Fola Daniel, Commissioner for Insurance, Nigeria
7
THE NEED FOR INSURANCE REGULATIONS IN
AFRICA Cont’d.
• Protect consumers of insurance products
– Ensure solvency is maintained
– Reasonable rates are charged
– Insurance covers are available
• Standardize the conduct of insurance business
– Regulation of entry
– Supervision of conduct
– Ethical conducts of business
• Establish sound financial system
– Enhance healthy competition
– Transparency
– Free flow of information
•
Mr. Fola Daniel, Commissioner for Insurance, Nigeria
8
INSTITUTIONAL FRAMEWORK
• The establishment of regulatory and supervisory
institution as part of the bureaucratic structure is
on the decline
• There is the growing acceptance by African
countries of the need for the regulation and
supervision of insurance activities through a
separate structure outside the core government
ministries
• These development will no doubt enhance
effective supervision/regulation.
Mr. Fola Daniel, Commissioner for Insurance, Nigeria
9
REGULATORY MODEL
• Insurance regulation in Africa is largely
compliance based
–
–
–
–
‘one cap fits all’ approach predominates.
same set of rules applied to all
No cognizance for the risk profile.
This model is costly in terms of:
– finance,
– manpower and
– time
• Added to the cost element is the loss of required
effectiveness.
Mr. Fola Daniel, Commissioner for Insurance, Nigeria
10
DEVELOPMENTS IN THE NIGERIAN
INSURANCE MARKET
• The National Insurance Commission of Nigeria, for
example is repositioning itself to meet the regulatory
challenges. Some of the strategic initiatives
embarked on include:
• Internal re-engineering of operations,
• acquisition and deployment of efficient
Information technology infrastructure
• Review of its organizational structure for
effectiveness,
• enhanced human resources management and
training program.
Mr. Fola Daniel, Commissioner for Insurance, Nigeria
11
CHALLENGES OF INSURANCE
REGULATION
• The African Insurance Market has grown in the
last decades
• There has been substantial increase in the
number of players and activities
• The world financial system has been liberalized
with national boundaries broken
• Communication and Information Technology
has changed the business landscape
These developments have all combined to pose
regulatory challenges to our various country
regulators.
Mr. Fola Daniel, Commissioner for Insurance, Nigeria
12
CHALLENGES OF INSURANCE
REGULATION cont’d
• Absence of reliable data for effective supervision
• Poor public perception of insurance
• Inefficient financial market needed to galvanize
reliable investment returns
• Slow process of law making
• Judicial system and enforcement of the laws
• Inadequate human capital
• Low level of technological infrastructure
Mr. Fola Daniel, Commissioner for Insurance, Nigeria
13
CHALLENGES OF INSURANCE
REGULATION cont’d
•
•
•
•
•
Ineffective legal frame work
Lack of adequate funding for effective regulation
Emerging trend of group structure
Cross border transactions by regulated entities
Inadequate cooperation by the regional and
continental regulatory bodies
• Prescriptive capital requirement
• Disconnect between product and consumer
needs
• Lack of independence of regulatory institutions
Mr. Fola Daniel, Commissioner for Insurance, Nigeria
14
WAY FORWARD
• Migration from compliance to risk based model of supervision
• Migration from prescriptive capital requirement to minimum
capital determination based on risk profile.
• Massive investment in creation of public image through well
crafted public relation strategy
• Redesign human capital development plan
• Increase investment in technology
• Adequate funding of the regulatory system
• Reform of insurance legal framework
• Regionalization and expansion of regulatory cooperation
including forging overseas alliances
• Reinvigoration of African Insurance Supervisor Association (AISA)
Mr. Fola Daniel, Commissioner for Insurance, Nigeria
15
GLOBAL ISSUES AND LESSONS
•
•
•
•
AIG-LESSONS
Group supervision
Rating Agencies
Subsidiary holdings
Mr. Fola Daniel, Commissioner for Insurance, Nigeria
16