Insurance operators must collaborate for effective RBS implementation — Adenusi

As the insurance sector gradually adopts the Risk Based Supervision model, RBS, practitioners have been charged to collaborate with peers and the industry regulator for smooth implementation.

Managing Director of Colximate Insurance Brokers Limited, Mrs. Olufunke Adenusi who gave the charge, noted that RBS implementation ensures that insurers have the necessary financial strength to meet their obligations, even in the face of unexpected challenges.

Adenusi made the assertion at the 2024 Insurance Industry Parley organised by the Chartered Insurance Institute of Nigeria, CIIN, in Lagos with the theme “Risk-Based Supervision: Paving the Way for a Stable and Innovative Nigerian Insurance Industry.”

According to her, RBS plays a pivotal role in assessing the governance, solvency and financial stability of insurance companies.

She said: “By providing a standardized measurement system, considering various risk factors, acting as an early warning system, bolstering market confidence, and facilitating comparative analysis, RBC helps regulators protect policyholders and maintain a robust insurance industry.

“Its implementation ensures that insurers have the necessary financial strength to meet their obligations, even in the face of unexpected challenges.”

While stating that RBS acts as enabler for insurance industry stability and innovation, Adenusi noted that it also plays a crucial role when measuring the financial strength and stability of insurers, is a regulatory framework that helps insurance regulators assess the solvency and financial stability of insurers, serves as a valuable tool to monitor and assess the financial health of insurers, risk assessment as a test of effective governance and risk exposure of insurers, early warning system to monitor the health of insurers, provide basis for comparative analysis, bolsters market confidence, facilitate innovation by both regulators and operators, as well as enhance market development.

Giving an overview of RBS, Adenusi noted that risk is the probability or threat of damage, injury, liability, loss or other negative occurrence, caused by external or internal vulnerabilities which may be neutralized through pre-meditated action  while RBS 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.

According to her, the central tenet of RBS is the relationship between risk and capital – the higher the risk profile of the insurer, the higher the capital it must hold.

On the benefits of RBS, Adenusi noted that it allows for the systematic assessment of insurers’ risks using a formalized framework at regular intervals; allows for the identification of insurers’ strengths and weaknesses as well as 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.