The implementation of the RBS forms part of the NIC’s continuous quest to provide a more effective monitoring regime of the financial soundness of insurance companies in the country.

The Deputy Commissioner of Insurance, Mr Michael Kofi Andoh, at an event in Accra on July 3 said his outfit would vigorously implement the RBS as malpractices persisted in the insurance industry.

“It will get to a point where two companies of the same size; one is undercutting, and one is not, we might ask the one undercutting to produce more capital than the one who is not undercutting because when you undercut, you make losses and when you make losses, it erodes your capital,” he mentioned.

He stated that such unconventional approaches to procuring business had the potential to compromise the integrity of the industry, therefore, the RBS would identify risks of insurance companies and ensure that companies that were making promises would be able to honour them.

 Mr Andoh disclosed that the NIC had already begun to monitor and  surveying markets to rid the industry of such practices.

“We conduct mystery shopping, we do inspections and we will punish the companies that breach regulations when it comes to our attention,” he mentioned.

Earlier, the NIC indicated that it had started revising its current solvency regime by introducing an early warning system that would help insurance firms to detect and prevent insolvency.

Premium undercutting 

Premium undercutting according to experts, is the practice where an insurance company offers clients unrealistically low premiums in order to gain a competitive advantage although the practice is not only unethical, but criminal and could result in the revoking of a defaulting insurer’s licence.

The motive of engagement is usually to increase the business portfolio, but this invariably depletes the insurer’s reserves, making it difficult for them to honour claims.

Way to go

In reaction to the NIC’s call to trigger the RBS, the Managing Director of Glico General,

, told the GRAPHIC BUSINESS that such supervision was needed to sanitise the industry since premium undercutting persists.

He said a strict implementation of the RBS would propel insurers to desist from premium undercutting “because if you undercut and your reserves are low, the NIC will force you to recapitalise”, that means finding finances from outside the business to improve on the company’s reserves.

“Past regimes have tried to enforce it and we have had seminars to prepare for its implementation so it’s a good thing for the industry,” he noted.  

 World view

The International Association of Insurance Supervisors (IAIS) developed proposals to harmonise and strengthen insurance regulations globally, notably the IAIS-revised Insurance Core Principles (ICPs), released in October 2011.

The ICPs provide a globally accepted framework for the supervision of the insurance sector and aim to increase regulatory convergence of local supervisory regimes. Among other things, the ICPs request that local supervisors introduce guidelines in terms of enterprise risk management, risk-based assessment of capital, and group-wide supervision and reporting. — GB