RBS set to strengthen risk management of insurers

Risk Based Supervision (RSB) is a structured supervisory approach that aimed at identifying the most critical risks that face each company and through a focused review by the supervisor to assess the company’s management of those risks and the company’s financial vulnerability to potential adverse experience.

In a presentation at the 2016 insurance retreat on “Transition to risk-based supervision: “Role of the regulator, the regulated entities and the media” held in Abeokuta, Ogun State, Director, Inspection, National Insurance Commission (NAICOM), Barineka Thompson, said that RBS requires supervisors to review the manner in which insurers are identifying, measuring and controlling their risks and to assess system of risk response of a firm with the supervisor’s own processes and interventions in line with the assessment.

According to him, the objectives includes – a supervision system that accord with international best practices; risk-focused supervision, to strengthen the risk management systems of insurers; to carry out preventive control; promotes appropriate regulatory action in line with the risk profile of an insurer; focus supervision resources more effectively and efficiently; and a more flexible regulation emphasizing on principles rather than the rules.

Besides, it also involves assessing whether an insurer’s governance, risk management and internal controls are adequate and whether the solvency and liquidity of the insurer are sufficient to withstand unexpected shocks. The central tenet of RBS, he said, is the relationship between risk and capital – the higher the risk profile of the insurer, the higher the capital it must hold.

Thompson identified key benefits of RBS are: allows for the systematic assessment of insurers’ risks using a formalized framework at regular intervals; allows for the identification of insurers’ strengths and weaknesses and areas within insurers where difficulties or challenges exist; encourages a strong risk management function in insurers; promotes the cost-effective use of regulatory resources; and allows for continuous monitoring, early warning indicators prompt intervention and timely action.

He said supervisors perform RBS by looking at all the material risks that are faced by an insurer and how it control those risks. Assessment of all material risks and how insurers control those risk, assess the financial position of insurer in the context of the residual risk and its ability to raise further capital if required. Assess insurers to ensure that policies, processes and systems are duly followed. A low-risk insurer is one which has excellent policies and systems to mitigate risks and implements them effectively at all times and is well capitalized with access to additional capital if required.