The nation’s insurance industry is losing premium income in the petroleum sector following indigenous players’ non-compliance with the Petroleum Industry Act (PIA).
According to insurers, some oil and gas players are failing to abide by some of the structures created in the new PIA.
“The PIA Reform Act 2021, among other things, created three regulatory bodies: the Nigerian National Petroleum Company (NNPC) Limited, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA). These authorities are having problems enforcing insurance compliance,” said an underwriter who does want his name mentioned.
Read also: Insurers engage FG on data provision, appropriate premium for assets
Section 49 (1) of Nigerian Oil and Gas Industry Content Development Act 2010 Act provides that 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 Insurance Act as amended.”
Section 50 notes that “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.”
However, some local operators or asset owners in the oil and gas industry are not implementing these parts of the PIA, thereby stalling the growth of the insurance industry and preventing insurers from earning new streams of revenues.
“Whereas, the International Oil companies (IOC’s) are largely complying with the provision on insurance, the Nigerian companies are blocking and resisting the regulators,” the industry source said.
According to the underwriter, the players are still insisting on doing it the ‘Nigerian way’, thereby bypassing the law concerning insurance and insurance broking.
Mayowa Adeduro, managing director, Tangerine General Insurance, responding to BusinessDay enquiries on the issue said, “Implementation of PIA with regard to insurance are having challenges because of the gap created in the preparation and passage of the PIA.
“PIA suffered more than a decade delay before passage by the immediate past National Assembly, and there were many changes in the original draft of the law.”
Adeduro said the final draft of the bill was done mostly without in-depth engagement with stakeholders, the operators, the consumers and other regulatory authorities. “This obviously leaves a gap in implementation,” he said.
Chika Onwunali, managing partner, Premium Debate, said: “The petroleum industry involves various stakeholders including operators, service providers, communities, and governmental bodies. So, effective implementation of the PIA will require active engagement and collaboration among these stakeholders to address concerns, clarify regulations, and ensure compliance.”
Onwunali further said that addressing these challenges requires a coordinated effort from regulatory bodies, industry stakeholders, and government entities to streamline processes, build capacity, enhance transparency, and strengthen enforcement mechanisms.
Read also: Insurers list measures to drive growth of sector
“Overcoming these hurdles is crucial for realising the intended benefits of the PIA, including improved governance, investment attractiveness, and sustainable development of Nigeria’s petroleum resources.”
Adetola Adegbayi, founder, Mutual Aid Specialists, said the challenge with enforcement of compliance is still the lack of collaboration between the petroleum regulators and NAICOM. “Petroleum regulators cannot regulate insurance; they can only collaborate in accordance with insurance and local content laws,” she said.
“Like what we have in Nigeria Civil Aviation Authority (NCAA), they are regulators for aviation. But in order to get aviation operators to comply with the insurance law, they collaborate with NAICOM and this has worked very successfully.”
Adegbayi said that the petroleum sector regulators have not collaborated adequately with NAICOM to enhance compliance in that sector.
Data from the Nigeria Insurance industry shows that out of N125 billion generated from oil and gas business in 2022, local firms’ actual underwriting was 35 percent, which translated to N43.8 billion while their foreign counterparts took 65 percent, which translated to N81.3 billion.
In the first quarter of 2022 (Q1’22), oil and gas premiums stood at N50.2 billion, with a total of N25.2 billion or about 50 percent transferred to foreign companies.
In Q2 of 22, oil and gas premium declined to N21 billion, but ceding to foreign counterparts rose to 71.4 percent or N15 billion. Premium rose to N24.7 billion in the third quarter (Q3), but ceding to foreign firms rose to 72.5 percent, amounting to N17.9 billion.
NAICOM and the Nigerian Content Development and Monitoring Board (NCDMB), about three years ago, issued a joint guideline that would make risks emanating from Nigeria be placed with registered insurers in the country.
Simbi Kesiye Wabote, former executive secretary, NCDMB, in his speech at an event said: “As we are aware, the combined provisions of sections 49 and 50 require all operators engaged in any form of activity or project in the oil and gas industry to ‘insure all insurable risks related to its oil and gas business…with an insurance company, through an insurance broker registered in Nigeria.’’
He said the Nigerian Oil and Gas Industry Content. Development (NOGICD) Act provides that where an operator seeks to place an insurable risk offshore, a written approval of NAICOM must first be sought and obtained and that NAICOM, prior to the issuance of the approval, must first determine that local capacity has been fully exhausted.
However, this is only observed in the breach.
