On
28 October, this year, the Central Bank of The Gambia (CBG) announced the
cancellation of the registration of the two insurance companies, effective 30
September 2015.
The registration of the International Insurance Company Limited, and of Londongate Insurance Company Limited was annulled for “failing to observe solvency margin requirement”.
The number of insurance companies in the country has now reduced to 11. However, the closure of the companies is more than just about a reduction in numbers.
To a large extent, it is a reflection of the appalling state of the country’s insurance industry. The two companies, simply, are ordered to wind down because they are not still financially strong to be able to pay all their liabilities.
“Solvency margin requirement” is a basic measure of how financially sound an insurance company is and its ability to pay claims.
In essence, after at least 15 years of operations, the two companies are struggling to stay solvent, to keep their head above water.
The central bank, as the regulator and supervisor of the financial industry including insurance industry, has not done a bad job.
They should not wait until a company starts to default in paying genuine claims due to solvency reasons before ordering it to wind down.
But the Bank should also take note that this is a warning on the state of the insurance industry. One thing is certain - apart from the internal company-specific issues, the reasons the two companies could not meet the requirement are also affecting all the other 11 companies.
The Gambia insurance industry is grappling with a multitude of challenges, but most of them are regulatory in nature.
For instance, one of the reasons insurance companies usually default in meeting the solvency margin requirement is charging low premiums that are not commensurate with the risk of the policy.
At the moment, The Gambia is said to have the lowest tariff for motor insurance in West Africa; yet most of the claims the industry is struggling with are those that emanate from motor insurance.
It should be noted that insurance companies cannot just increase the premium rate without the approval of the regulatory authority.
The insurance industry needs a lot of regulatory reforms for it to play its rightful position in the economic development of The Gambia.
Apart from third party motor insurance, another regulatory reform that could strengthen the industry and support the government is legislating for compulsory local marine cargo insurance on imports and exports.
This legislation alone, when implemented, could have the potential to generate millions of dalasis in income for the insurance industry, the tax aspect of which could contribute immensely to the national budget.
Even reforms in terms of who regulates and supervises the industry could further help.There is need to jettison the role of insurance regulation from the central bank.
The regulatory bank has been doing a great job in terms of the insurance industry, but things and time always change due to circumstances.
There is a need to establish an autonomous insurance commission whose primary and only mandate will be to regulate the insurance industry for growth.
Presently, The Gambia is the only country in Anglophone West Africa without an independent insurance commission; all others have removed insurance regulation from the purview of their central banks.
If the Gambia insurance companies are to grow at a fascinating level, these reforms are indispensable; for they will scale up the growth rate of the industry at an appreciable rate.
Otherwise, more companies could possibly be following the two whose registration has just been annulled.Indeed, the pointers to the current state of the industry are not appealing, but appalling.
“If a child, a spouse, a life partner, or a parent depends on you and your income, you need life insurance.”
Suze Orman
