•Point towards oppourtunities
By Henry Uche , [email protected]
In their desire to give insurance business prominence and make it a household brand in Nigeria, the National Insurance Commission (NAICOM), the Nigerian Content Development Monitoring Board (NCDMB), Centre for Promotion of Private Enterprises (CPPE), operators in the oil and gas industry and insurance stakeholders have agreed to synergise to boost local content insurance particularly in the oil and gas sector.
They made this agreement at the oriental media summit, held in Lagos recently with theme: “Building Local Content Synergy Between the Oil and Gas Industry and the Insurance Sector in Nigeria” and sub-themed, “Harnessing Insurance Oppourtunities in Nigeria.’’
These stakeholders acknowledged the challenges facing the insurance industry, saying however that there are enormous oppourtunities begging to be tapped, not only for the betterment of the industry, but also for Nigerian economy.
Delivering a keynote address, the Commissioner of Insurance, Mr. Olorundare Thomas, called on Oil and Gas sector operators to comply with the guidelines issued in 2010 which amongst others, stipulates the roles and responsibilities of insurance institutions in ensuring compliance with local content law, with the primary consideration of ensuring actual exhaustion of available in-country insurance capacity.
The NAICOM boss urged all stakeholders to intensify the ongoing drive to facilitate platforms that address the demand-supply gap; encourage specialised products that addresses the needs of the oil and gas industry and address all potential impediments.
To him, stakeholders’ support would boost human capacity development and ensure technical capacities of insurance suppliers, adequate risk pricing and comprehensive coverages and risk management.
“As a regulator, we are committed to creating an enabling environment that will consistently enhance increased capacity of insurance institutions both financially and technically.
“Beyond our promises there is need for reciprocal expectations from operators in the oil and gas sector, one of which is timely compliance with the requirements of the guidelines jointly issued by the Commission and NCDMB,” Thomas said.
He added that with the mandate to develop indigenous capacities to participate in the oil and gas industry, both regulators (NAICOM and NCDMB) would ensure that there is collaboration for the facilitation, promotion and adequate assessment of needs of the oil and gas industry that would influence the behaviour of insurers, reinsurers and brokers in a way that addresses the needs for national growth and development.
For his part, the Executive Secretary of NCDMB, Simbi Wabote, represented by the Director, Corporate Services, Mr. Patrick Obah, affirmed that collaboration and stakeholders’ engagement in the industry is a way forward, hence the need for commitment by NCDMB and NAICOM to drive compliance with relevant laws, reduce bottlenecks and promote more value and capital retention.
The NCDMB boss maintained that the collaboration between NCDMB and NAICOM crystalised in the joint issuance of the insurance guidelines in 2022 to support the implementation of the insurance requirements contained in Sections 49 and 50 of the Nigerian Oil and Gas Industry Content Development (NOGICD) Act 2010, must be sustained conscientiously.
“Building synergy between these two critical sectors, hold huge potential for growth and development of our economy. The main benefit of the guidelines is the creation of a database of all insurance programs procured by the operators, project promoters, alliance partners, and Nigerian indigenous companies, to enable the Board monitor utilisation of in-country insurance capacity thereby enhancing in-country value retention.
“In addition to various provisions of the NOGICD Act and the Insurance Act, Sections 49 and 50 of NOGICD Act specifically provides concrete basis for NCDMB and NAICOM to work together to extract maximal value from both the insurance and the oil and gas industry.
“Section 49(1) states: ‘All operators, project promoters, alliance partners and Nigerian indigenous companies engaged in any form of business, operations or contract in the Nigerian oil and gas industry, shall insure all insurable risks related to its oil and gas business, operations or contracts with an insurance company, through an insurance broker registered in Nigeria under the provisions of the Insurance Act as amended.
“Section 49(2) states: ‘Each operator in subsection (1) of this section shall submit to the Board, a list of all insurance companies and insurance brokers through which insurance covers were obtained in the past six months, the class of insurance cover obtained and the expenditures made by the operator,” he said.
“Section 50 states: ‘No insurance risk in the Nigerian oil and gas industry shall be placed offshore without the written approval of the National Insurance Commission which shall ensure that Nigerian local capacity has been fully exhausted.”
Wabote pointed out that Section 49 made it mandatory for operators, project promoters and other entities in the oil and gas industry to obtain insurance coverage for all insurable risks with insurance companies and brokers that are registered in Nigeria in line with the Insurance Act (as amended).
“Section 50 forbids entities in the oil and gas industry from offshore placement of any insurable risks except with the written approval of NAICOM. The essence of these two provisions of the NOGIC Act is to ensure full utilization of available in-country capacity in the insurance sector by oil and gas industry players. The goal ultimately is to promote more capital retention in country and to boost the capacity of Nigerian insurance companies and brokers to support the Nigerian oil and gas industry.
“One of the challenges of utilizing Nigerian loss adjusters or brokerage firms is the low capital base of the insurance industry. Closely related to it is the capacity of local insurance firms to underwrite the huge loss associated with a typical upstream petroleum project.
“Though NAICOM has made remarkable efforts to mitigate some of these limitations, however, a lot still need to be done. In the spirit of collaboration, NCDMB is poised to work with NAICOM as a credible partner every inch of the way to get around some of these obstacles particularly within the boundaries of our statutory mandate”
He said to address the issue of low capital base of the industry, stakeholders need to support NAICOM to push for an increase in the minimum capital base of insurance companies, while NAICOM and other stakeholders need to work assiduously to forge and promote mergers of insurance companies to enhance their efficiencies and improve their market share as part of their collective benefits.
“In all, we must explore the benefits and tackle the constraints impeding full implementation of the provisions of sections 49 and 50 of the NOGICD Act 2010” he urged.
Corroborating, the Director/CEO of Centre For The Promotion Of Private Enterprise (CPPE), Muda Yusuf, who decried the poor contribution of insurance sector to GDP, (less than one percent), called for conscientious implementation and enforcement of legal and regulatory framework provided by the aforementioned Act.
Yusuf affirmed that the insurance sector has enormous prospects / potential for growth hence the need to explore critical provisions of the Act.
“The oil and gas industry in Nigeria is a multi-billion dollars industry. With ongoing reforms, prospects for the growth of the industry have heightened considerably. This offers corresponding growth in opportunities for insurable risks”
The former Director General of LCCI added that following the Nigerian Oil and Gas Opportunity Fair (NOGOF) held recently in Yenagoa, with new investment prospects valued at over $50bn, showcased by international and indigenous companies, and prospects projected to be developed within five years, stakeholders should maximize phenomenal opportunities inherent in the insurance industry.
Moreover with the Petroleum Industry Act, PIA, (which has unlocked tremendous investment potential in the entire value chain of the oil and gas sector): Upstream, downstream and service sectors, he called on relevant stakeholders to explore the regulatory and institutional environment created for investment growth across the broad spectrum of the sector.
“The federal government have played their roles in laying the foundation for the desired synergy; it remains for the industry players, working with the regulators in both sectors, to take advantage of the prospects.
“Though opportunities for synergy between insurance and oil and gas sector are immense, however we need a solid framework for collaboration and partnership between the insurance community, the oil sector investors, the NAICOM and the NCMDB to be put in place to harness the enormous potential”
He admonished insurance industry players to strengthen their public policy advocacy to boost the demand side of insurance, by ensuring compliance with current provisions with respect to mandatory insurance, promoting and deepening insurance premium subsidy in critical areas of the economy such as agriculture, health and climate change projects.
“Public policy advocacy on insurance can be strengthened by deepening financial literacy to create awareness for insurance products. Offering tax incentives on insurance premiums. On supply side, industry practitioners need to strengthen domestic capacity in capital adequacy, claims management, trust level and perception issues, use of technology, professionalism in the conduct of intermediaries, high corporate governance principles and innovative marketing and customer focus” he stressed.
Other stakeholders and panelists at the event challenged regulators, players and operators to address dearth of adequate capacity, Knowledge gap, poor contribution of insurance to GDP, low awareness and penetration of insurance business, inadequate support from government across level, dominance of foreign firms among other challenges.
Howbeit, they remain auspicious given the huge opportunities that flow from the proposed collaboration between NAICOM and NCDMB. According to them, the heralded synergy would bring about right pricing of risks in the sector, as well as engender adequate risk management.
They pushed for tailor – made products offering for the market; well thought- out regulatory decisions; protection of local industries; enhance legal (Judiciary) contributions and the finance sector to the insurance industry.
“We believe insurance sector can create more jobs opportunities to boost living standards of people. Renewable energy can surge, partnership and synergy with relevant stakeholders can be leveraged in pursuit of local content development in oil and gas sector and the insurance Industry.
“Hugh sums of capital would be attracted from investors especially foreign investors who would want to take advantage of opportunities provided by both industries to add value to Nigerian economy” they maintained.