Mohit mohan, 1273576, F2, Q 46

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 anyphysical product. Although it is intangible, insurance is a crucial business service that createsand adds value. It lubricates the oil of business by being the risk bearer. Its importance isbetter appreciated when disaster of whatever magnitude occurs. Indeed, the economicimportance 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 timeimmemorial, 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.