INTRODUCTION
Until
very recently, many did not perceive insurance business as a crucial financial service mainly because the purchase of insurance service does not involve the
exchange of any physical product. Although it is intangible, insurance is a crucial
business service that create sand adds value. It lubricates the oil of business
by being the risk bearer. Its importance is better appreciated when disaster of
whatever magnitude occurs. Indeed, the economic importance of insurance is to
reduce the financial implications of disasters thereby creating asense of
security, which encourages people to engage in commercial activities, without
fear,irrespective of the degree of uncertainty. In other words, insurance
service, from time immemorial, has always propelled business as it provides a
safety net for entrepreneursdesirous of taking insurable risks.
However,
as a strategy for managing risk and uncertainties, how has the insurance
industry delivered on its mandate? How well has it justified the confidence reposed
in it by persons who are not risk averse? Without speculating on your response,
let me admit that the insurance industry has the capacity to perform more than
it is currently doing. If the industry is re-engineered, it would achieve the
desired optimum level of performance. The profession and players in the
industry must come to this realization and collectively evolve strategies for advancing
the course of Insurance.
RE-ENGINEERING THE INSURANCE
INDUSTRY - DISCUSSIONS
Re-engineering involves the re-appraisal
and review of the processes and systems of an organization such that, in the
midst of competition, it becomes not only more efficient and effective but also
continues to deliver value to its stakeholders. In terms of an industry, re-engineering
will entail regulatory review designed not only to restructure the business landscape
and reposition the affected industry in the scheme of things but also to
enhance its contributions to national economic growth and development. For an
industry like insurance this material is property of Risk Analyst Insurance
Brokers Ltd. Battered by claims
repudiation, slow operational processes and its attendant wastes, low Information
Technology, dearth of adequate skilled manpower, etc., re-engineering is a fait
accompli.
Thus,
the focus of re-engineering in this sector must be to enhance its image through
prompt processing and payment of all legitimate claims, aggressive marketing of
its value creating abilities, the packaging of insurance policies in simple and
understandable language, the development of products that are based on the
needs, buying habits and risk profile of the insured, etc. Although some of
these thorny issues are given greater attention below, it must be stated that
the achievement of the desired optimum level of performance or the Promised
Land in the insurance industry depends on how well the government, regulatory agencies
and the insurers play their respective parts.
From
the outset, it must be stated that the government and the regulatory agency are
the drivers of re-engineering in any sector. The insurance industry is not an
exception. By promulgating the Insurance Act and creating the National
Insurance Commission (NAICOM), the government has declared, in no uncertain
terms, its prime position in the scheme of things. It is in pursuance to this
enabling Act that NAICOM set out to review the minimum capital requirements for
players in the industry as part of the re-engineering programmer, setting the
minimum level of capitalization which the government through its regulatory
agency, the NAICOM, has embraced, is one strategy for enhancing the capacity of
the insurer to meet the needs of the insured. Given the dynamics of the environment,
I strongly believe that such a review cannot be a one-off initiative; it must
be regularly but reasonably done to align the insurers’ capacity with growing
demand for insurance services and business risks.
CONCLUSION
The solvency of the insurer must be measured and monitored by the government to ensure
the protection of the insured . The reason for this is not farfetched.
As it is common knowledge, premiums are paid now, in return for a benefit which
may not occur until many years in the future. Justifiably, the purchaser of insurance
policy is entirely reliant on the expectation that the insurer will still be in
business at that unspecified future date and that it will then have sufficient
financial resources to discharge its obligation. This is the going concern
concept in Accountancy. In this changing and uncertain world it is not a
foregone conclusion that this will always be the case, particularly having in
mind the difficult and volatile economic circumstances that are frequently
characteristic of developing countries. Nor can one rule out the possibility
that negligence or unscrupulous behaviour, rather than difficult economic
circumstances, will be the cause of the company’s inability to pay. This fact
was key to understanding some of the problems in East Asia where many Korean
firms thought they had purchased protection against exchange rate risk, but the
insurance was not there when the event insured against occurred. Here lies the need for the government and its
regulatory agencies to regularly monitor the solvency and market practices of
insurers. Indeed, it is imperative that, as part of the re-engineering process,
a system of supervisory oversight is required to help assure that a company
having such important responsibilities to the public will be able to meet its financial
obligations when called upon to do so.
Indeed,
many countries (e.g., United States, Canada and EU countries, etc) recognize
the importance of this matter and are currently struggling to put in place
supervisory systems, both financial and market-driven systems that will
facilitate the growth of a sound private insurance industry within their
countries, while also providing protection for consumers of insurance products.
In this respect, consumer protection really has two aspects: (1) protection
against losses arising from the insolvency of institutions and (2) protection
against losses caused by fraudulent practices and other market conduct abuses.
Both solvency supervision and market conduct supervision have a role to play in
underpinning an insurance industry that is vibrant, financially sound and
entitled to the confidence of the insuring public. In turn, an industry having
these characteristics will benefit the nation by facilitating foreign
investment and providing a sound financial infrastructure that will benefit the
economy as a whole. Indeed, in developed countries it has been found by
experience that a sound insurance supervisory system, encompassing concerns
related to both solvency of insurers and their conduct in the marketplace, is
an important factor in maintaining public confidence in the financial sector
and ensuring that foreign investment is not discouraged.
