NIC Wants Solvency Law To Deny Weak Insurers Bigger Business
5/12/2012 9:06:31 AM -
The National Insurance Commission (NIC) is pushing for a new solvency law which, when adopted, will deny insurance companies with weak financial standing the opportunity to undertake bigger business transactions.
The new regulation, which will be captured in the commission’s revised solvency and capital adequacy framework for insurance companies, is currently at the draft stage and when adopted and passed into law will compel insurers to do business according to their liquidity ratios - the amount of their assets that can easily be used to defray debts where necessary.
In effect, insurance companies nation-wide will not be allowed to write policies for their clients on credit bases as is mostly done under the existing regulation.
The Deputy Commissioner of the NIC, Mr S.N.K. Davo, who disclosed this to the Daily Graphic, said the commission was also aiming at using the said framework to address the debt crisis currently gaining ground in the industry.
“We want to use this new solvency framework to address the debt problem in the industry. The framework will not recognise premiums written to people on credit as assets to those insurance companies; it will treat them as liabilities and in turn make the company insolvent,” Mr Davo said.
Because the current regulation somewhat allows insurance companies to take up policies above their liquid financial abilities (with the hope that not all the insured will immediately come for their claims), most companies are sometimes found wanting in times of claim payment; an incident that has led to mounting outstanding claims in the industry.
The deputy commissioner was, however, confident that such a problem will be cured with the introduction of the new solvency and capital adequacy ratio.
“We want to use this new regulation to make the insurance industry sound and liquid,” he said, since a sound and liquid industry would protect policy holders against prolonged or even refused claim payments by their insurers due to the financial inability of the company to settle the said claim.
He also said the regulator was interested in “avoiding the situation where a policy holder has a genuine claim to collect yet the insurer cannot pay because the company in question is not solvent,” a trend that has led to the accumulation of debts in the financial books of some companies.
The new solvency and capital adequacy ratio is part of five new regulations being devised by the commission, a draft of which has been sent to the various companies for their inputs.
The NIC has meanwhile scheduled a stakeholder meeting on Wednesday (November 16) to collate the views and concerns of the companies on its proposed revised regulations for the sector.
Meanwhile some of the insurance companies have urged the commission to be tough in enforcing its own regulations, arguing that “the problem with the insurance industry in Ghana is not about reforms but with the enforcement of the laws made by the NIC.”