The Nigerian insurance industry will be in a better position to take up its risks particularly in oil and gas sector as provided in the local content Development Act.
The industry at its current capital is only able to take about 30 percent of the risk emanating from the oil and gas sector, according to statistics from the industry trade groups.
This development, according to the National Insurance Commission (NAICOM) has been due to lack of capacity, particularly funding, thus resulting in why a lot of the risks emanating from the local market are largely ceded abroad through reinsurance.
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.
The National Insurance Commission (NAICOM) had in a circular issued on Monday May 20, 2019 announced increase in the paid-up share capital of life companies from N2 billion to N8 billion; General Business from N3 billion to N10 billion; Composite Business from N5 billion to N18 billion;and Reinsurance companies from N10 billion to N20 billion.
According to the Commission, the minimum paid-up share capital requirement shall take effect from the commencement date of the circular (May 20, 2019) for new applications, while existing insurance and reinsurance companies shall be required to fully comply not later than 30th June 2020, before the recent extension in date to December 31 2020.
Sunday Thomas, acting commissioner for Insurance had as director general, Nigerian Insurers Association (NIA) made observation that 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 who authored an article “Local Content Insurance Regulation In Anglophone West Africa; published in an 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.
Modestus Anaesoronye
