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Nigerian insurers lose billions of Naira to oil industry premium flight

By on August 14, 2013

The woes of Nigeria’s domestic insurance industry operators may not go away any time soon, except they pool capacity to underwrite big ticket risks and put an end to the issue of premium flight in the oil underwriting business.

This has long been acknowledged by stakeholders, resulting in various attempts consortia in the past, an idea that was killed by what one stakeholder termed “Nigerian factor” to mean insincerity or outright deceit leading to disagreement among members.

Although Nigerian insurers were expected to have started underwriting 30 per cent of oil and gas industry risks in 2007, and 70 per cent in 2013, according to Commissioner for Insurance, Fola Daniel, local retention in oil and gas insurance business in Nigeria, such only recently rose from 6 to 30 per cent in the last three years.

This is however despite the Local Content Act that has been passed into law.

It is estimated that the nation’s insurers have continued to lose billions of Naira to premium flight in the industry as foreign players corner the big ticket businesses, just as the equally lucrative maritime industry.

To get the picture of the problem in the industry, the Nigerian National Petroleum Corporation (NNPC) alone, paid $71 million or N11.4 billion premium this year to the more capitalized foreign operators.

Owing to such leakages, many insurers are left to pick the crumbs, resulting in poor earnings and negligible profits (and outright loses in most cases), following which insurance companies listed on the Nigerian Stock Exchange (NSE) remain penny stocks.

Commenting, Gbenga Ogunko, Executive Director, Business Development, Mutual Benefits Assurance Plc, said in a chat in Lagos recently, urged Nigerian insurance operators to form a strong pool. In this way, he continued, the industry would have the required capacity to play actively in the oil and gas sector, where a lot of premium flight takes place.

He expressed belief that the nation’s insurance industry could become stronger, making significant contributions to Gross Domestic Product (GDP), if operators can collaborate, pool resources together and rally round the regulator to drive the different reform programmes going on in the sector.

Ogunko stressed that the insurance industry holds a lot of potential that was yet to be tapped, noting that this would be possible where the insurers have the required capacity to harness the potential.

“Rather than work as individual companies, let operators come together and share the risks”, Ogunko said.

Besides, he urged operators to join hands with leadership of NAICOM, recalling the commission’s recent efforts to implement the “no premium no cover” provision in the Insurance Act 2003.

 

 
{Daily Independent]