The increasing level of political risks in Nigeria, relating to terrorism, kidnapping, piracy and political violence may worsen local underwriter’s access to foreign reinsurance treaty, as the London insurance market tags the country relatively high risk. This could raise the cost of reinsurance in the country.
This may still not be all, as there is currently no capacity to retain these risks locally, even without the support of foreign reinsurers, just as local operators are mainly fronting agents.
Ken Aghoghovbia, deputy managing director/COO, Africa Reinsurance Corporation (Africa Re) commenting on the tagging of Nigeria by the London Market as relatively high on political risks, said ‘that is true’. “The prices for reinsurance of such classes of political risks are higher in Nigeria than in Ghana.
“When the incidence is high, price of reinsurance will go up because there is high probability that the risk might crystalise.
“So, in most cases, those who accept such risks charge high premiums to be able to accumulate reserves to pay claims; and in some cases, others reject such risks, based on their risk appetite”.
Stakeholders who spoke at a one-day capacity building session in oil and gas, with the theme “Trends in Underwriting Upstream Risks,” organised by Wapic Insurance Plc, as part of its contribution to on-going transformation in the insurance industry, observed the need to build capacity for increased retention.
The stakeholders believe that the there is need for increased financial and human capacity for retention of business in oil and gas, to give the local content law a meaning.
They also agreed that what is critical, is to build human capacity for improved underwriting and conscious risk assessment, to avoid high exposure and excess claims.
Nick Sorgo, partner, Energy Division, JLT Specialty Ltd, London, speaking on the subject of the seminar, identified trends in the global market and lessons for Nigerian operators.
Sorgo stated that the London market sees Nigeria as relatively high risks on key political considerations.
Pius Agbola, director, Authorisation and Policy, National Insurance Commission (NAICOM) who represented the commissioner for Insurance, said the commission is committed to increasing oil and gas business retention in Nigeria.
Agboola commended WAPIC for the initiative, urging other stakeholders to emulate the company and help build capacity for the market.
“We want to retain more risks in oil and gas, but we need to build necessary capacity to ensure we underwrite the business profitably, as we increase retention”, Agbola said.
Sina Elusakin, deputy managing director, Industrial and General Insurance Plc, Kunle Onmilani, chairman, YOA Consulting and Steve Odjugo, oil and gas expert and consultant, who spoke at the plenary session said “we need to be cautious about what we describe as our capacity when taking up risks in oil and gas or political risks because there are usually associated losses which could mean much, if not taken into consideration.”
They observed the need for increased human capacity for efficient underwriting, stating that local players should try out these things and cross check with foreign counterparts as that is the only way to build capacity.
“Understanding our risk exposure on the risks we carry enables us to effectively and efficiently manage the risks, and at the same time close the gap between us and the consumers, in terms of trust and confidence”.
According to the discussants, the Nigerian insurance industry, about two years ago, suffered about N7 billion claims on pipeline vandalism risks, resulting from an exposure that was not properly understood.
They noted that such claims have continued to strain affected underwriters, who had to cut down a lot of their overheads to remain afloat after settling the claims.
“We can retain little of terrorism risks, little of kidnapping risks, but there is nothing to retain on piracy because it could wipe out a whole industry,” one of the participants at the seminar whispered to BusinessDay.
Politically motivated attacks and civil unrest continue to threaten global business operations, assets, and people with increasing pressure on insurers to provide cover.
Adeyinka Adekoya, managing director, Wapic Insurance Plc, speaking earlier, said the seminar being its inaugural Oil and Gas Conference, the second in the series of her “Annual Thought Leadership,” initiative lends credence to the industry transformation objective of Wapic Insurance Plc.
Adekoya said the theme was particularly important, when certain developments in the industry were considered. These, he said, included the drastic fall of crude oil prices, the planned NNPC exit from the JV arrangement and an alternative arrangement which allows the JV finance itself by retaining its operating cost and capital allowances.
Other such considerations, he said, included the passage of the Petroleum Industry Governance Bill (PIGB) by the Senate.
“Due to the nation’s dependence on the Oil and Gas sector, it is invariably important that one should consider the risks involved, both in the offshore and onshore operations.”
Modestus Anaesoronye
