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INSURANCE REGULATION IN THE AFRICAN ENVIRONMENT Presented By: Mr. Fola Daniel Commissioner for Insurance, Nigeria National Insurance Commission, Abuja-Nigeria.

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Presentation on theme: "INSURANCE REGULATION IN THE AFRICAN ENVIRONMENT Presented By: Mr. Fola Daniel Commissioner for Insurance, Nigeria National Insurance Commission, Abuja-Nigeria."— Presentation transcript:

1 INSURANCE REGULATION IN THE AFRICAN ENVIRONMENT Presented By: Mr. Fola Daniel Commissioner for Insurance, Nigeria National Insurance Commission, Abuja-Nigeria 1

2 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 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

3 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 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

4 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. 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

5 INTRODUCTION contd 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. 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. 5 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

6 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 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

7 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: 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

8 THE NEED FOR INSURANCE REGULATIONS IN AFRICA Contd. 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 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

9 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. 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

10 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. 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. 10 Mr. Fola Daniel, Commissioner for Insurance, Nigeria

11 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. 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. 11 Mr. Fola Daniel, Commissioner for Insurance, Nigeria

12 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. 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

13 CHALLENGES OF INSURANCE REGULATION contd 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 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

14 CHALLENGES OF INSURANCE REGULATION contd 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 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

15 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) 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

16 GLOBAL ISSUES AND LESSONS AIG-LESSONS Group supervision Rating Agencies Subsidiary holdings AIG-LESSONS Group supervision Rating Agencies Subsidiary holdings Mr. Fola Daniel, Commissioner for Insurance, Nigeria 16


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