RBS to provide assessment of insurers’ risk
As the National Insurance Commission (NAICOM) plans a successful transition of insurance industry to a Risk-based Supervision (RBS) model this month, the director inspectorate of the commission Mr. Barineka Thompson, has assured that the RBS model would provide systematic assessment of insurers’ risks.
Presenting a paper titled: ‘Transition to RBS: The role of the regulator, the regulated, entities and the media’ Thompson highlighted the key objective of RBS to include assisting in strengthening the risk management systems of insurers, and carrying out preventive control.
He said it would equally promote appropriate regulatory action in line with the risk profile of an insurer, focus supervision resources more effectively and efficiently; and provide a more flexible regulation emphasising principles rather than the rules.
Thompson described the RBS as a “structured supervisory approach” aimed at identifying the most critical risks facing each company and through a focused review by the supervisor, to assess the company’s management of those risks and the company’s financial vulnerability to potential adverse experience.
He explained that the RBS “involves assessing whether an insurer’s governance, risk management and internal controls are adequate, and whether the solvency and liquidity of the insurer are sufficient to withstand unexpected shocks.”
He gave other key benefits of the model to include allowing the systematic assessment of insurers’ risks using a formalised framework at regular intervals; allowing the identification of insurers’ strengths and weaknesses and areas within insurers where difficulties or challenges exist as well as encouraging a strong risk management function in insurers.
Others are promoting the cost-effective use of regulatory resources and allowing for the continuous monitoring, early warning indicators, prompt intervention and timely action.
He said supervisors’ format with the RBB would look at all the material risks faced by an insurer and the control mechanisms for those risks; assessment of all material risks and the assessment of the financial position of insurer in the context of the residual risk and its ability to raise further capital if required. He further listed power to compel an insurer to increase its capital, risk assessment and quality, high level of consistency and guidance and training for supervisors as preconditions needed for smooth transition to the model.
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