The stable edge of the insurance industry over the banks and non bank financial intermediation NBFI has been set as the unassailable sign post of strength of the industry over other players in the finance sector and the Global Federation of Insurance Associations GFIA says the chances of rupture in insurance operations on account of liquidity risk “is rarely problematic and the systemic risk it presents is low.”
In the report of GFIA it boldly stated, “The insurance industry is a unique sector that is highly regulated and has a very different risk profile from banks and other financial sectors.” It gave reasons why insurance systemic risks are low whereas other finance services players are prone to fail as they encounter those risks, “Its liabilities are fully funded and it does not use borrowing to fund customer claims. It does not play a core role in payment systems, liquidity risk is rarely problematic and the systemic risk it presents is low.”
Getting clear on the low consequences for insurance in certain risk spheres the report said, “Liquidity and systemic risks are limited in the insurance in the insurance sector, but they could be significant for some other financial institutions. as the NBFI sector includes a wide range of very disparate entities, the other differences with insurers vary depending on the type of entity.”
GFIA said while the insurance and banks are on the same platform when it comes to highly regulated and supervised solvency; conduct of business and reporting; these varies in other financial sectors. On the use of borrowing to fund customer claims/deposits, core role in payment systems, high liquidity risks and, high systemic risks, these remained a clear no for insurance and yes for banks with other finance sectors still seated on ‘varies’ place.
Presenting the insurance industry as a safe route within the wider financial sector in the category of unstable sands, the report stated the industry has excelled in providing service for all that stay in its cover. Continuing, GFIA outlines primary insurance services and the consequences of poor regulation. “The insurance sector provides many benefits for citizens, businesses and the wider economy. Poorly designed regulation and excessive requirements can undermine the role it plays. Policymakers should therefore not apply banking regulations to insurers and they should not include insurers in their concerns about other financial sectors.”
Still sculpturing the distinct form insurance should take the report said, “For regulatory and supervisory purposes, insurers should be recognised as a separate and distinct category and policymakers should refer to insurers, banks and other financial sectors separately when discussing the financial services landscape.”
Up ticking well designed regulation as opposed to poorly designed regulation, the Chairman Nigerian Insurers Association Kunle Ahmed cited National Insurance Commission circulars on solvency regulation and their impact; “NAICOM’s circulars on solvency regulation are a crucial tool for strengthening the Nigerian insurance industry, ensuring its stability, and protecting policyholders. These circulars, particularly those related to risk-based supervision (RBS), reflect a proactive approach by the regulator to align the industry with international best practices like Solvency II.
“Furthermore, solvency regulations can influence how insurers invest their assets, as they need to ensure that their investments are sufficiently liquid and match the profile of their liabilities.”
Taken on policymakers on current tax reform, NIA Chairman said a well-designed tax reform could stimulate overall economic growth by encouraging investment, consumption, and business activity. “A thriving economy generally translates to a stronger insurance market as businesses expand and individuals accumulate more assets to protect.”
With policymakers in focus, he said tax reform could fall short of expectation… “depending on the specific provisions, the tax reform could potentially increase the tax burden on insurance companies through changes in corporate income tax rates, treatment of insurance products like annuity, or other levies. This could reduce their profitability and potentially impact their capacity for capital accumulation and investment.”
“Overall, the insurance industry stakeholders must continue to actively engage with the government during the legislative process to advocate for a tax regime that supports the growth and development of the insurance sector and recognises its vital role in the economy by maintaining the VAT exemption on insurance premiums, ensuring a fair and competitive tax rate for insurance companies, considering tax incentives to promote insurance adoption, ensuring a smooth transition and providing sufficient time for compliance with any new tax regulations,” he stated.
