The abysmal performance of local insurers in the lucrative oil and gas insurance business sub sector is is raising concern within the circle of insurance operators in the country. Experts said, however, that innovate solutions can bring changes, writes MESHACK IDEHEN.
There are indications that the National Insurance Commission, NAICOM, is making moves to address the problem of low participation of local insurers in the oil and gas insurance business in Nigeria.
Described as the most lucrative sector in insurance business in the country, analysts said this optimism about potential change in the fortunes of local insurers as far as oil and gas business was concerned, stems from the recent statements credited to the insurance sector regulators, NAICOM.
According to NAICOM, the commission is committed towards increasing insurance penetration in the country, and that it (NAICOM) has been designing ways to increase insurance premium via the Market Development Restructuring Initiative, MDRI, and also in oil and gas insurance business.
Not surprisingly, industry experts told National Mirror with the MDRI focusing at enforcing all compulsory insurance policies as provided in the Insurance Act 2003; oil and gas insurance which forms one vital sector of the economy should also be given a fillip, so that the business of insurance can occupy its rightful in contributions to the nation’s Gross Domestic Product, GDP.
Thus, the Managing Director of Brickred Consult Limited, oil and energy insurance capacity development firm, Mr. Dan Okehi, said it was gladdening and heart warming that local operators in the country’s insurance market are now expressing their determination to check the continued loss of foreign exchange by way of ceding oil and gas insurance businesses to foreign insurance and reinsurance companies.
Okehi said to enlarge the capacities of local insurers to do big time oil and gas insurance business that the operators must take necessary steps to build their human and underwriting capacities, and thus ensure that no oil major in the country cedes risks to their insurance subsidiaries abroad, under the guise of lack of local capacity to underwrite oil and energy risks.
He pointed out that this step has become necessary following the continued identification of infractions in the underwriting of oil and gas risks in the country, a situation that has also made it impossible for the local insurance industry to tap fully into the local content policy in oil and gas business that was recently introduced by the Federal Government.
According to him, “operators in the industry must beef up their capacities by training their manpower with a view to empowering them to puncture the excuses of the oil majors who may want to depend on lack of local capacity to denying them the business. “The local content policy is meant to boost premium income and build capacity of the insurance industry like it is doing in the other sectors.
Unfortunately, it is only the insurance industry that has not benefited much from the local content policy”, Okehi noted. Be that as it may, and with the sector’s regulators having already released guidelines for oil and gas insurance, in pursuant of the provisions of the Insurance Act 2003,Insurance Practitioner, Mr. Obasi Ngwuta, said local operators no longer have any excuses for not enlarging their oil and gas insuring capabilities.
Based on the guidelines released by NAICOM that Ngwuta pointed out is geared in the main towards enlarging local insurers capacity for the business, no person or organisation shall transact an insurance or reinsurance business with a foreign insurer or reinsurer in Nigeria in respect of any life, asset, interest or other properties classified as domestic insurance unless with a company registered under the Insurance Act 2003.
Furthermore, the guidelines also states “All insurance arrangements, agreements, contracts or memoranda of understanding relating to any operation or transaction in the Nigerian oil and gas industry shall be in conformity with the Insurance Act 2003 and other relevant provisions”.
No insurance risk in the industry shall be placed overseas without the written approval of the commission, which shall ensure that Nigerian local capacity has been fully exhausted, NAICOM added.
However, in declaring local capacity as the aggregate capacity of all Nigeria- registered insurers and re-insurers, which shall be fully exhausted prior to any application for approval to re-insure any Nigerian oil and gas risks overseas, Ngwuta agreed with NAICOM that an insurer’s capacity for oil and gas policies shall be the net retention of that insurer, plus its re-insurance treaty capacity, saying the re-insurance treaty capacity of a consortium of insurers is also acceptable and that any other re-insurance facility, other than treaty is equally acceptable as an insurer’s capacity, provided there is evidence that the risk has a cover provided by an acceptable security.
Citing the huge funding capacity that is required of companies involved in oil and gas insurance as a major hindrance to local insurance firm’s profitable participation in the oil and gas sector over the years, former Director-General of the Nigerian Insurers Association, NIA, Mr. Ezekiel Chiejina,said local insurance does not lack the capacity to underwrite oil and gas insurance account, and that insurance companies in Nigeria have the requisite financial muscle to underwrite oil and gas risks, and have been doing so.
On the need to enlarge the involvement of local insurers in the sector, he noted that local insurance companies have since upped their ante of their participation in oil and energy insurance business in Nigeria and in Africa, with the country’s underwriters leading the top five oil accounts on the continent with over N44.6billion. National Mirror gathered that local operators like Lasaco Assurance Plc which is involved with the USAN oil fields; Leadway Assurance Plc, Guarantee Trust Assurance (GTA), and International Energy Insurance (IEI) are also domestic firms that fully in the sector.
Business Analyst and Managing Director of City Insurance Broker, Mr. Rocky Igunbor, said on his part, that low technical capacities, low retention limits of local insurance companies and dearth of financial capabilities amongst several other challenges, has made the targets of local insurer taking over oil and gas business remaining unrealistic, saying the industry regulator must do more and look for a more proactive approach towards tackling the problem.