The adoption of Risk Based Supervision (RBS) in the insurance sector is seen as crucial for enhancing the stability, governance, and financial resilience of insurance companies. Mrs. Olufunke Adenusi, Managing Director of Colximate Insurance Brokers Limited, highlighted these points during the 2024 Insurance Industry Parley organized by the Chartered Insurance Institute of Nigeria (CIIN) in Lagos.
Adenusi emphasized that RBS serves several pivotal roles in the insurance industry. Firstly, it provides a standardized measurement system that considers various risk factors. This system acts as an early warning mechanism, enabling regulators to protect policyholders and maintain market confidence by ensuring insurers have sufficient financial strength to meet their obligations, even amid unexpected challenges.
Key aspects of RBS highlighted by Adenusi include:
1. **Assessment of Governance and Solvency:** RBS helps in evaluating the governance, solvency, and financial stability of insurance companies.
2. **Market Confidence and Comparative Analysis:** By bolstering market confidence and facilitating comparative analysis, RBS contributes to a robust insurance market.
3. **Regulatory Framework:** It serves as a regulatory framework that aids insurance regulators in assessing solvency and financial stability, thus ensuring insurers are adequately prepared for risks.
4. **Early Warning System:** RBS acts as an early warning system to monitor the health of insurers and intervene promptly if needed.
5. **Innovation and Market Development:** It promotes innovation within the insurance sector by regulators and operators alike, fostering market development.
In her overview, Adenusi defined risk as the probability or threat of damage, loss, or negative occurrences caused by vulnerabilities. RBS, on the other hand, is a structured supervisory approach aimed at identifying critical risks faced by insurance companies. It involves focused reviews by supervisors to assess how companies manage these risks and their financial vulnerability to adverse experiences.
The core principle of RBS revolves around the relationship between risk and capital: insurers with higher risk profiles are required to hold higher levels of capital. This ensures that they can absorb potential losses and continue operations smoothly.
Benefits highlighted by Adenusi include systematic risk assessment using a formalized framework, identification of strengths and weaknesses within insurers, promotion of robust risk management practices, cost-effective regulatory resource utilization, and continuous monitoring with early warning indicators for timely interventions.
Overall, the adoption of RBS in the Nigerian insurance industry is aimed at fostering stability, innovation, and resilience amidst evolving market dynamics and challenges. It underscores the importance of collaboration between insurance practitioners, industry peers, and regulators to ensure effective implementation and sustained industry growth.