The Global Federation of Insurance Associations (GFAI) is leaving no stone unturned to prescribe that the insurance regulation should not be construed to fall in line with banking regulation because their services do not align and impositions on banks should not be beamed on insurance the intended results notwithstanding, because what fit banks cannot be made to apply to insurance.
Settling into the different services they offer and by extension the non-bank financial intermediation (NBFI), the global body in a report published in 2024 stated, “Failing to recognise the important ways in which the insurance sector is unique threatens to undermine the effective functioning of the sector. It also threatens to undermine its important contributions to society – protecting individuals and businesses who find themselves facing financial hardship due to some unforeseen event; supporting economic activity through the spreading and diversification of risk; providing access to healthcare; reducing risks through effective underwriting practices and mitigation initiatives; and as major sources of long-term investment in the broader economy.”
In a situation where a legislation could dislodge the operations of the industry as the GFAI identifies and in the Nigerian unfolding scene collaborates with insurers opposition to negative tax reforms, the Chairman of Nigerian Insurers Association NIA Kunle Ahmed, said in a recent media briefing that “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.
“Changes in the taxation of investment income earned by insurance companies (from investments made with policyholders’ funds) could impact their profitability and their ability to provide competitive returns to policyholders, particularly for life insurance and annuity products. The tax reform could have differential impacts on various insurance product lines. For example, changes in tax treatment of life insurance components or health insurance premiums could affect their attractiveness to customers, he stated.
Looking ahead with unclear tax reform taken shape NIA Chairman said the period leading to and immediately following the implementation of a significant tax reform can create uncertainty in the market, potentially affecting investment decisions and business confidence within the insurance sector. In addition, he said changes in tax laws could also affect our reinsurance arrangements potentially increasing the cost of reinsurance for local insurers if cross-border transactions are impacted.
“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.
The GFAI in its unique presentation of insurance as unique business model said, “In light of its critical role in society, the insurance industry is already, rightly, subject to comprehensive regulation. Existing regulation requires insurers to maintain adequate capital, manage risks effectively, treat customers fairly and uphold robust internal governance. Appropriate regulation of the insurance sector considers the key features of the insurance business that makes it unique. These include: the pooling and diversification of risks; the inverted production cycle that means policyholders pay the protection ex-ante; the highly integrated approach to risk management; and the long-term investment horizon driven by strong and stable balance sheets.”
For healthy insurance sector in all its member associations GFAI insists, “Further regulation of the insurance sector that is based on broader concerns about banks and other financial sectors should be avoided. It would result in additional, unjustified operational and cost burdens that would ultimately be paid for by consumers. Instead, the regulation and supervision of insurers should be distinct from that for banks and other financial institutions. This will ensure that the insurance regulatory regime is focused on the right risks and, ultimately, that consumers and society at large can avoid unnecessary costs and continue to reap the benefits of a healthy, resilient, efficient, innovative and reliable insurance sector.”
