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Climate Change Tops Insurance Industry Risk; Highlights Need for Emerging Risk Management

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AM Best has examined more than 60 potential risks on U.S. insurance companies claims frequency and severity, and ranked them by level of impact, with a look at how well-prepared insurers are for each risk. The analysis, contained in a new Best’s Special Report, elevates the importance of emerging risk management as an essential part of the enterprise risk management (ERM) toolkit.

The report, “The Growing Importance of Emerging Risk Management,” also provides an expanded look at the top 10 emerging risks insurers likely will face over the next decade. In AM Best’s view, climate change represents the largest of these risks. With frequency and severity of weather-related events on the rise, insurers have been impacted severely by related losses, and pricing based on past experience remains challenging as catastrophe models have not yet fully considered the new normal. Because of this and other considerations such as reserving and reinsurance, AM Best also views the industry as having low readiness to the complex challenges climate change presents.

An increasingly interconnected and uncertain global economy is facing the impacts of a number of factors, among them:
• Climate change, evidenced by increased weather volatility and creating catastrophic
losses due to flooding, hurricanes, wildfires, and droughts
• A connected world in which cyber risks proliferate and businesses and consumers may
be at high risk from systemic failure of connectedness
• Low interest rates across the globe and expansionary monetary policy that has limited
the ability of central banks to counter any future crisis
• Government protectionism and reconfiguration of global trade contracts
These factors, along with changing demographics and technology, have elevated the
importance of emerging risk management as an essential part of the ERM (Enterprise Risk
Management) toolkit. Insurers need to continually scan the ecosystem for risks, quantify the
impact of emerging risks, and be proactive in designing mitigation plans in the event that
these risks manifest themselves.

An emerging risk may be a new risk; it may also be a current risk whose impact is not
fully understood—for example, cyber risk. AM Best examined the impact of more than 60
potential risks on US insurers’ claims frequency and severity. Exhibit 1 lists the top ten risks
to the insurance industry. Some of these risks—such as terrorism or climate change-related
catastrophes—may hit insurers quickly and abruptly, while others—such as negative interest
rates, legacy systems, and social inflation—may lead insurers to a slow and painful death.
The number of natural catastrophes has risen steadily since 1970 (Exhibit 2). For example,
the growing frequency and severity of wildfires, coupled with poorly planned urbanization,
has resulted in economic and insured losses (noticeably in California and Australia) that
have had a tremendous impact on the insurance, reinsurance, and retrocession markets. Insurers
see wildfires as an increasingly frequent and severe emerging risk.
Cyber is another rapidly evolving risk whose impacts may span multiple
lines; a systemic cyber attack has the ability to paralyze entire corporations and even governments, as evidenced by the NotPetya attacks globally and the ransomware attacks on Atlanta and Baltimore in the United States of America.

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FCCPC: Electricity Topped Consumers’ Complaints In 2020

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The Federal Competition and Consumer Protection Commission (FCCPC) says it received the highest consumer related complaints from the electricity sector in 2020.

Speaking in Abuja on Sunday, Babatunde Irukera (pictured), chief executive officer of FCCPC, said the banking and telecommunication sectors ranked second and third respectively on the complaints chart.

He added that the aviation sector was ranked fourth.

“Our complaints resolution team is still a very small team of people and they are dealing with thousands of complaints,” Irukera said.

“We are looking at expanding capacity to have more hands handling the complaints but the real game changer in handling complaints better and faster is for companies to start doing it.

“The person who has the least open complaint in our resolution team has about 800 complaints across sectors and that is one person. If you multiply it by 12 to 15 persons, you will imagine the number of complaints.

“Being able to expand to a point where we are able to operate more efficiently, we will keep training, leveraging technology, the more we leverage technology, the more efficiently we can do our work.”

The commission was established by the 2018 Federal Competition and Consumer Protection Act (FCCPA) to promote fair, efficient and competitive markets in the Nigerian economy, facilitate access by all citizens to safe products, and protect the rights of all consumers in Nigeria.

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FEC Approves CBN’s Request To Renovate National Theatre For N21b

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Lai Mohammed, minister of information and culture, said on Wednesday that the Federal Executive Council (FEC) has approved a memorandum of understanding (MoU) between the Central Bank of Nigeria (CBN), and the ministry of information and culture for the renovation of the National Theatre in Iganmu, Lagos.

He spoke at the end the weekly FEC meeting in Abuja.

The federal government, on July 12, 2020, handed over the national theatre to CBN and the bankers’ committee to signify the kick-start of the renovation process.

“This is a landmark approval because, it has paved the way for investment in the creative industry as part of the resolve of this government to create at least one million jobs in the next three years in the creative industry,” Mohammed said.

“The CBN and banker’s committee are willing to invest N21.894 billion to renovate, refurbish and commercialization (run it profitably) of the national theatre complex. The MoU has a life span of 21 years after which it will revert back to government.”

The minister assured that no job will be lost after the national theatre is renovated, adding that the “brand new national theatre, an event centre” will instead create more jobs.

Asides from this, FEC approved about N9.43 billion to complete the digital switch over (DSO) in broadcasting; N8.98 billion for a new national ICT park in the federal capital territory (FCT) to coordinate public and private ICT hubs in Nigeria.

The council also approved a new national policy on aging which would take care of the needs of the aged people across Nigeria; approved the ministry of water resources memo to construct Damaturu water supply project in Yobe state worth N8.43 billion.

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Adesina identifies Debt Service As Greatest Risk To Nigeria

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The President of African Development Bank (AfDB), Dr. Akinwunmi Adesina, has warned that debt service is Nigeria’s greatest risk, even as he urged the federal government to take steps to increase tax revenue in the face of dwindling oil income.

The Director of Communications and Liaison of the Federal Inland Revenue Service (FIRS), Mr. Abdullahi Ahmad, stated that he spoke virtually at the recently held First Annual National Tax Dialogue .
Dr. Adesina was quoted as saying that due to the impact of the COVID-19 pandemic, Nigeria’s economy shrank “by 3% in 2020 on account of falling oil prices and the effects of the lockdowns on economic activities,” adding, “with shrinkage in oil revenues, debt service payments pose the greatest risk to Nigeria.”
He stressed further that for Nigeria to overcome the pandemic, “taxes must form a significant percentage of government revenue. Digitalization of tax collection and tax administration is critical to ensure greater transparency of the tax system, widening of the tax base, while mitigating compliance risks and encouraging voluntary tax compliance.”
Tax experts and stakeholders at the event called for the automation of tax collection by the FIRS through data and intelligence in order to ease tax collection, as well as, improve revenue.
Executive Secretary, African Tax Administration Forum (ATAF), Mr. Logan Wort, harped on the place of technology in generating revenue for the country in a post-Covid economy.
Mr. Wort, who joined the dialogue virtually from South Africa, stated, “Domestic Resource Mobilisation (DRM) is expected to contribute at least 75% to 90% on average per country” in the post-Covid era, adding that Nigeria and other African countries should note, “improved tax revenue will have to take prime position” in the scheme of things.
He urged Nigeria to pay serious attention to e-commerce and the digital economy sector where big, trans-national digital conglomerates like Google, Netflix and Uber operate and make huge, tax-free profits as a possible way of increasing tax revenue generation.
He said Nigeria should borrow a leaf from Ghana in e-commerce taxation, projected to fetch Ghana $450 million in annual tax revenue.
Ekiti State Governor, Dr. Kayode Fayemi, who was chairman of the Dialogue, was quoted as lauding the FIRS “for its performance in the 2020 fiscal year, despite operating in the most challenging period. The Service not only collected N4.9 trillion in taxes, achieving 98% of its target; only 30.6% of this was attributed to Petroleum Profits Tax, from what used to be over 50%”.
He urged participants to, “interrogate how Nigeria can further deepen the use of technology to improve tax compliance nationally and across sub-nationals.”

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