‘Pool will help insurance industry build capacity for oil and gas risks’

Having successfully overseen the Nigerian Liability Insurance pool, and seeing the attendant benefit of building capacity to play in big ticket risks, Peter Aluko, general manager/CEO of the pool in this interview with Modestus Anaesoronye is optimistic that oil and gas pool will succeed only if operators will have patience. Excerpts:

How did Nigerian Liability Insurance Pool comes to be?

Nigerian Liability Insurance Pool started in 1988 by an association of some reputable insurance companies with the objective of domesticating liability risks within the industry. Then, the industry was facing the challenge of getting overseas reinsurance for liability risk and so they thought of coming together as a pool to bridge the gap and underwrite that class of risks. The pool is an aspect of reinsurance. It is not the conventional reinsurance, so you can say is a quasi reinsurance. But, their duty is to cover the risk of their members alone and not the entire industry.

From the pool, members who suffer losses are assisted to pay their claims. Specifically, the pool focuses on liability aspect of motor insurance, public and product liability, liability aspect of contractors-all-risk and workmen’s compensation insurance. The pool has gone through a lot of transformation in membership beginning from 2001 and recapitalisation in 2005 and finally consolidation in 2010, now having 10 members from initial 25, earlier on.

Following this transformation, there was an idea to expand the scope and horizon of the pool in terms of business it does, to make it stronger and more robust, so there was introduction of director and officers’ liability insurance, which is now part of the business where we are getting patronage.

We also have in the pipeline professional indemnity, employer’s contingent liability insurance and we are looking at their workability. You know that in 2010, there was a law that was enacted to takeaway workmen’s compensation from insurance industry, but to every rule there is always an exemption.

We believe that there will be a loophole in that Act which we are studding, and we know at the end of the day the employer is still the insured, so there is the tendency that there would be some liability left with the employer. In case that exist, the insurance industry is there to fill that gap and we are trying to package that. That is how far we have gone with the pool.

Who are your customers?

Our members are our clients and they are the shareholders. For conventional reinsurance, it is for all insurance companies and any one can bring business to them, and renew annually but for the pool, it is only for our members. They bring their businesses every quarter, make cession to us and when there is claim we pay. They are contributors, they are shareholders and do not need to renew their membership annually.

Under what regulation do you operate?

The insurance companies that form this pool beyond carrying the Corporate Affairs Commission (CAC) certificate, they also carry the National Insurance Commission license. But this pool is formed by an agreement of contract, we are ruled by the agreement they fashioned together.

What has been your claims experience?

It’s been very okay. The pool is in a good state to meet all its obligations. Like I told you, it operates like reinsurance. The template is just like reinsurance. You cede on quarterly bases, and on monthly bases you forward your breakdown, both premium and claims. You back it up with a statement that ‘this is the premium you have given us and this is the claim you are taking away and this is the balance.’

It is only when the claim for a particular month is higher than premium ceded for that month that we dip hand into our purse and give them cheque. Again, when a claim is very high on notification to our member, may be if it’s what they cannot cope with immediately they could pass it to us and we issue the cheque pending finalisation of the claim. This is called cash call.

Why has oil and gas pool not succeeded in Nigeria?

There should be an oil and gas pool. Several attempts have been made by stakeholders but because of impatience of the promoters they have all failed to survive. The promoters are impatience; you can’t form a pool today and expect profit immediately. Insurance is not like that. The key objective must be first of all to protect the industry and the economy and we must play that role clinically.

Oil and gas is a very big area, and when it is discussed what comes to the mind of many operators is ‘how I do I make my money?’ It’s not like that; money will come when we can sustain the industry. I have been involved as a consultant in formation of oil and gas pool and the major challenge has been impatient. Today, this is the only pool that has survived and is still surviving; many others have come and gone because of the impatient of the operators.

How long did it take Nigerian Liability Insurance Pool to break even, in looking at what is possible in oil and gas pool?

I joined this company in 2002, before then it had operated for like four years. They were making profit and since then we have been making profit. But this is completely different from what you could find in oil and gas pool. What they operate is different from our own. We are operating a narrower base unlike the oil and gas sector.

Our kind of business and the risk we are covering is not that threatening, like what we will happen in oil and gas if there is a problem. So, there is need for somebody to sit down, and think of how to build experience and the technical know-how. Income should not be the priority, but how to develop local professionals that can handle oil and gas business.

Majority of our insurance companies are just post offices; go and check. They take these risks and pass them overseas for little commission. They are mere agents. But the area the pool would have helped them is to develop local professionals if the patience had been there.

The retention within the local market would begin to increase and the pool will only take the extra because organisations are building capacity. What are we gaining is that all our risks are going abroad.

We need to do something about it, so that foreign reinsurers can begin to believe in us. Mind you, motor insurance started with cover notes before the likes of Ekinderos of this world, Ladipo-Ajayis of this world sat down and started thinking of what can be done. It is through pool that this can be possible in oil and gas, let’s be patient and build capacity.

What is the future of the industry?

Insurance industry has a great future, and what the present leadership in NAICOM is doing is quite commendable particularly with enforcement of “No premium No Cover.”They have taken the bull by the horn, and people now know that they have to pay to get cover and another thing is enforcement. It will get to a day when people will realise that they need insurance to travel on the road. We will get there but the support of operators and the different arms of the industry are key.