Special risks: Capacity, expertise pose challenges

Sunday Ojeme
The insurance industry moved a step further in Lagos on Friday when the Lagos Business School in partnership with Mutual Benefits Assurance Plc organised a round table to explore ways for operators to benefit from the much talked about special risks underwriting.
Ever since the Federal Government pronounced recapitalisation for the industry and the attendant 40 per cent local content promise, insurance operators, either by sheer seriousness or mere propaganda, have been at their best in trying to convince investors of their readiness to partake in the oil, gas and aviation cover.
With the belief that participating in special risks remains the cash cow to grow their premium and profits, attention has been shifted to activities that will ensure the opportunity does not elude them.
To prepare themselves, some companies have either created or re-energised the oil and gas units in their organizations as well as sending some of their workers abroad for training in that area.
In spite of the efforts on the part of the operators, experts are still of the opinion that the required capacity and expertise to underwrite risks in the special risks sectors are still far from what operators in those sectors are looking for.
The roundtable, which attracted representatives from the Nigerian National Petroleum Corporation, insurance brokers, business managers and teachers as well as insurers, provided opportunities for the speakers to tackle issues that are likely to pose challenges to the underwriters in their bid to have a bite on the juicy pie.
It was also meant to formulate an agenda that will see insurers coming together in a consortium with a very high capacity and expertise to get involved in the special risks cover without much ado.
Setting the ball rolling, the Chairman of Mutual Benefits, Chief Chamberlain Oyibo, said in the last 50 years there had been a disconnect between the production of oil in the country and some sectors of the economy, especially the financial sector. He said it was commendable that in the last eight years the government had deemed it necessary to provide a platform where a number of sectors could tap into the huge profits made from the oil sector.
According to him, “The financial sector should be involved in the huge profits made by the oil and gas industry. There is a lot of business for insurance in the oil and gas sector. We believe that if the insurance sector keys into oil and gas, jobs will be created for the economy and manufacturing, which is the biggest employer of labour will thrive.”
In his submission, Prof. Pat Utomi lamented the status of insurance practice in the country, saying in the developed world, insurers actually determine how and what a company should go.
He said although the industry was gradually overcoming the human capital and financial challenges with the current reforms, the NNPC still had a great role to play in driving local content, adding that capital that built a country was usually made from home.
Expounding the benefits and possible challenges, the Managing Director of Mutual Benefits, Mr. Akin Ogunbiyi, gave a detailed analysis of the financial operations of the operators involved in the oil and gas sector as well as what insurers could benefit from giving them cover.
Describing the roundtable as a turning-point to the economy and a good opportunity to interact and come up with a positive strategy for the insurance industry, he said with the value of assets in the special risks sector, there was no reason why the insurance industry should not be the mover of the economy, saying that the bulk of insurable assets were still being taken abroad.
Throwing the challenges of capacity and expertise before his colleagues, he queried their ability to underwrite special risks, adding that in spite of the hiccups in the sector serious companies were still emerging.
He said that qualified manpower was required in the industry. He urged the operator, the government and regulators to come together to improve on the human capital through the institution of a college of insurance to train young graduates.
Giving analysis of the estimated asset value of operators in the oil and gas sector, he put the value of onshore and offshore assets of the NNPC at $28bn, Shell,/SPDC, $7bn including the Bonga project, Cheveron/Texaco, $4bn, Elf/Total, $3bn and Agip/AOEN, $2.8bn.
For ExxonMobil, he put the value at $5.4bn, Addax Petroleum, $278m, Pan Ocean, $38m and NLNG, $5bn.
He said majority shares of the above assets were either covered in the international market with traditional insurers or under their captive accounts.
According to him, “The reinsurers in Europe will not give reinsurance security in form of oil treaty because they fear accumulation of risks which cannot be recompensed by the good experience of other locations as local insurers lack international spread.”
He added that most of the insurers did not have the oil and gas reinsurance treaty to guaranty their acceptance and that the technical expertise to handle the underwriting complexities of the oil and gas risks was limited. He pointed out that enough technical reserves had not been accumulated to sustain the cash intensive claims perculiar to the oil and gas industry.
Speaking on the efforts so far made by the NNPC at harmonizing the the local content agenda for the benefit of the insurers, a representative from the corporation, Mr. Ernest Nwapa, wondered if the insurers were actually prepared to tap into the oil and gas sector.
He decried the self-centred attitude of the operators, saying that such an attitude had been responsible for the failure of several proposed consortia in the past.
Speaking on the national content development imperative, he said the model focused on domiciliation but underpinned with a requirement to transfer ownership of assets to Nigerian subsidiary in the case of multi-national companies.
He said the local content campaign should not be seen from the angle of indigenization but from that of domiciliation to build global collaboration, attract foreign direct investment, promote technology transfer as well as for local value addition.
He said that all the guidelines that were developed in respect of oil and gas insurance were done in collaboration with the National Insurance Commission and other stakeholders, adding that an average growth rate of 55 per cent per annum in proportion of insurance was placed locally.