The National Insurance Commission (NAICOM) has been advised not to totally dispose off insurance companies that fail to meet the new minimum capital requirement for underwriters but instead, convert them to micro-insurers.
The Managing Director/CEO, Achor Actuarial Services Limited, Pius Apere, gave this suggestion to NAICOM at the National Association of Insurance and Pension Correspondents (NAIPCO), 4th National Conference, held recently, in Lagos.
Apere noted that the current capital requirement for micro insurance license put between N15million to N200 million for life business, and N25 million to N400 million for general business, depending on the coverage area and space is small and not sufficient to deepen penetration, or even become profitable companies.
“The above capital is not enough to acquire the necessary infrastructural technology and hire and train large number of sales agents to sell the products, so converting few existing conventional insurers with their already developed infrastructure and human capacity will make the miracle.”
He further acknowledged that it would suffice to have firms with N2 billion and N3 billion operating in micro insurance business, which would assist in the increase of the number of micro-insurance providers and accelerate the insurance penetration at the grass-roots in the country.
“It will be appropriate to revisit the tiered-minimum capital base approach for micro-insurance by encouraging existing conventional insurance companies that will not be able to recapitalise under the new recapitalisation regime to register as national micro-insurers in order to serve the low-income segments (downscaling), thereby supporting the evolution of more inclusive insurance systems.
“This would no doubt increase the number of micro-insurance providers needed significantly which in turn would accelerate the insurance penetration at the grass-roots in the country.
“Such un-recapitalised conventional companies would leverage more on their existing IT infrastructure, quality staff and with relatively lower expected strain on resources,” he noted.
Apere, noted that the micro-insurance guidelines state that, “registered insurance companies shall be granted national micro-insurer licence upon application”, which is in line with and/or similar to the concept proposed above.
Going further, he however, stated that allowing the recapitalised conventional insurance companies to enter the micro-insurance market has its implications and consequences, in terms of unethical business practices, undue price competition (e.g. rate cutting) at the detriment of other micro-insurers.
He declared that the success of the micro-insurance market was majorly dependent on the regulatory activities, particularly the implementation, evaluation and monitoring of the micro-insurance guidelines being operated by all relevant stakeholders
He said, “it is observed that the solvency margin for non-life micro-insurance business (not less than 25 per cent of premium income as stated in micro-insurance guidelines) is definitely more onerous than the solvency margin for non-life conventional insurance business (not less than 15 per cent of premium income as stated in section 24(2) of Insurance Act 2003).
“It is unclear if a different micro-insurance solvency margin would need to apply to a registered General Insurance company which is granted a national micro-insurer licence. Such ring-fenced arrangement carries additional operational burden.
“It is also not clear why the above discrepancy is not applicable to life insurance business. Risk-based supervision, is more likely that the regulator would develop or propose a different framework for risk-based supervision that will be suitable for the recapitalised conventional insurance companies in the insurance industry next year, reflecting a level playing field in business acquisition and the minimum level of capital based on overall level of risk retained which may be measured in terms of risk exposure, or by size of premium income or technical provisions/reserves.
“When the foregoing is being implemented for the conventional insurance companies, the regulator should also ensure that the principle of proportionality be applied in the supervisory regime for the micro-insurance market.”