NAICOM moves to build local capacity for oil and gas insurance risks

To enforce local content policy on oil and gas and ensure that capacity is built in the Nigerian market, industry regulator, the National Insurance Commission (NAICOM) is embarking on strategies to ensure that all underwriting companies operating in the country are given opportunity for participation.

The move according to insider source in NAICOM will ensure that local capacity is exhausted before any proportion of oil and gas business risks is taking offshore by making sure all companies take a certain percentage of the available risks to the size of their capital.

The implication of this development industry analysts said would bring an end to unhealthy competition for market share in that segment of the business since every underwriter would be give a share of the business without having to lobby oil companies or government officials at the Nigerian National Petroleum Corporation(NNPC).

Besides that, this move which allows NAICOM to decide what volume of risks any of the participating companies can accommodate based on their capital will bring an end to rate cutting regime that has characterized the insurance business in a long while.

Kola Adedeji, managing director/CEO, Niger Insurance plc said current moves by NAICOM to ensure that every registered insurance company that is operating is given opportunity to thrive by participating to the level of their capacity in this segment of the business is a welcome development.

“With this policy, every company has been given opportunity to thrive and the struggle to bring down rates would no longer reign in the market, Adedeji said.

“We are happy with what the commission is doing and it will impact on the industry over time”.

George Onekhena, deputy commissioner for Insurance, Finance and Administration said the local content has been there, but what we are trying to do is to ensure that it is well enforced by making sure that local capacity is exhausted before any risks is taken out of the Country.

“What we have done is to make sure we sanction any operator that takes the business offshore without the approval of the Commission. That is why you see those big fines in some companies’ books, Onekhena said.

Sunday Thomas, director general, Nigerian Insurers Association(NIA) said despite the local content laws and regulations established in Nigeria and Ghana, insurance companies in Anglophone West Africa are yet to fully take advantage of the opportunity to effectively position themselves as major players capable of leading foreign firms in the underwriting of oil and gas business.

Thomas in the article “Local Content Insurance Regulation In Anglophone West Africa” published in the latest edition of Africa Re Quarterly journal said the level of capital required for writing big risks in the oil and gas sector is often lacking, which sometimes limits the local insurance industry’s underwriting and retention capacity. “In fact, risks in the oil and gas industry are enormous and involve huge financial outlays and therefore, require sound technical capacity to accurately assess.”

According to him, the issue of technical capacity of indigenous insurance companies still remains a challenge. While some of the big companies have put in place constructive human capital development programmes that will leverage on the local content policies, the same may not be the case for most of the companies that are still fringe players.”

Local Content is defined as ‘a set of deliberate orientation and actions to build domestic capacity relevant for service and product delivery comparable within that industry’ and ‘an opportunity to locally build a sustainable culture of service quality and capabilities exceeding customers’ expectations and comparable to international standards through key local personnel and management’

The local content regulations of the oil and gas industry seek to increase indigenous participation by prescribing thresholds for the use of local services and materials and promoting transfer of technology and skills. It is expected that the regulations will result in an increase in job creation and building necessary expertise in the local workforce that will make it internationally competitive.

Section 49 of the Nigerian Oil and Gas Industry Content Development Act, 2010 in Nigeria requires all investors in the oil and gas industry to insure all their insurable risks relating to the 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. However, Section 50 of the same Act requires that where an operator desires to place insurance risk outside Nigeria, it can only be done with the written consent of the insurance sector regulator, the National Insurance Commission (NAICOM), which shall ensure that Nigerian local capacity has been fully exhausted.