The landscape of insurance underwriting is changing with a new approach to rating of risks adopted by National Insurance Commission NAICOM for underwriters to follow strictly and any alteration carries sanctions that will make the Board of the erring insurer to ask the CEO to exit for committing the company to such high financial penalty.
This was disclosed by the Deputy Commissioner for Insurance NAICOM, Dr. Usman Jankara at recent event where he said that as part of the Commission’s regulatory activities it has started what is called Form and Rate Filing where insurance companies are required to file their premium rates for the subsequent year. “Those premium rates are analysed by the market conduct team and then situate a range, if an insurance company falls below the range generated from their filing they would be asked to explain, and if the range is above the range we will also ask questions.”
The rate range Jankara said, “are then used as the basis to monitor what happens over the 12 month period of the policy because normally companies will fill their monthly returns, production returns and those analysis will happen from the back end. This is what the market conduct department does as a routine,” he stated.
To make sure there are no loose ends in the rate process, he said the input of the underwriter is critical. “The process is meant to ensure that the rate that companies have voluntarily determined and submitted to NAICOM is what they are applying all through that period. There are challenges in terms of lack of adequate actuarial capacity in the country and we are already dealing with in terms of the adequacy of the premium that is being assessed.”
He contends that since insurance is the pooling of funds from people and businesses exposed to same risks, it is of high interest that adequate premium is charged such that its not too high to discourage cover for risks or low that the ability of the insurer to meet claims obligation is in doubt.
Jankara cleared that it is only insurance that brings to the table something you can’t get elsewhere because its only insurance that has the capacity to mobilise such fund from those exposed to same risk and use it to settle a few that will suffer losses.
The Commission Deputy still holds that the rate coast is not clear of the debris of ratecutting yet, but adhering to adequate rate that fixes obligation to pay claims is an ongoing process. From the working of the current system which implicates the insurer from the input voluntarily made, the Commission steps in with penalties for infractions not minding whose ox is gored.
“There are issues of premium and rate cutting and we are dealing with that, and we are very clear. We have imposed sanction and penalties on companies and some CEOs have recently been asked to go because they undercut the rate and we came in very very harsh and the Board of the affected companies have asked the CEOs involved to go they can’t continue to keep them,” he stated.
