For some time now, Uganda’s insurance companies have known that their regulatory framework is going to change in the embrace of risk based supervision. The stage is well set for this change to happen. The rules of the game will be so different and accordingly, insurance sector players must upgrade their risk management approach to meet regulator expectations.
Without doubt, every insurance business already has a minimum level of both the appreciation and application of risk management principles. The nature of their business implies so. However, they may still have a lot of adjusting to do to suit their business processes and strategic decisions to the impending regulatory regime. For example, whereas every company is likely keeping tabs on their financial and physical assets they may not be giving the company’s intangible sources of value that much focus. Adequate risk management measures will require that businesses are able to safeguard customer assets, employee and supplier assets as well as organizational assets such as reputation, systems and processes, values, knowledge and the business strategy at large. Before everyone rushes to conclude that they are already doing this, let me add that it will have to be accomplished in a demonstrable manner. In fact, it has to be verifiable by independent parties as they will surely be interested in your risk management methodology going forward.
At the bare minimum, your risk management framework will have to communicate your risk management objectives, mandate and commitment. These will be spelt in the company’s risk management policy as a foundational necessity for proper risk management. This will be reinforced with a clear clarification of organizational arrangements; the plans, relationships, accountabilities, resources, processes, and activities that you use to manage the organization’s risk. Fortunately, the regulator has already cast light on the pathway to achieving this since every company will have to enlist services of a risk manager to ensure that the above is done. It is highly unlikely that this will be a straight lane journey and may involve a lot of learning new ways of doing business as well as unlearning traditional business habits.
Whereas this article cannot and should not offer concrete expectations of what the regulator will demand of the market players, suffice it to highlight that the demands will most likely be proportionate to the nature of any company’s business, the perceived risks that can arise from a company’s business and operations, steps already taken by a company to mitigate risks, the likelihood of risks crystallizing in spite of mitigation and the potential damage that those risks will inflict if they crystallize.
It is also possible that a company’s required capitalization will be a result of past business decisions and the anticipated claim liabilities that those decisions are expected to generate. Inference on projected liabilities may derive from various considerations such as the nature of the company’s products, the concentration of business between particular products and client sectors and anticipated claim trends as perceived from the historical performance of the company’s business portfolio. This will call for more stringent control over the underwriting process since the quality of business you put on your books could yield future recapitalization requirements from the regulator. For purposes of close monitoring of the risk profiles of companies, the regulator is likely to delve deeper into analyzing the quality of business decisions taken by management and prescribe measures aimed at safeguarding policy holders in line with their opinion of the merit of those decisions, commensurate with the risk they perceive inherent in a company’s operations. It is therefore imperative that companies will be able to draw reliable projections of tangible and intangible assets and liabilities that their decisions will generate in subsequent periods, even before the regulator takes a look into the companies’ dealings.
Every company should prepare for these imminent changes. The changes will be for the good of everyone involved in insurance business in this country. They will improve stakeholder confidence in insurance services in Uganda. The accompanying benefits cannot be exaggerated.