PROTECTING LOCAL INSURANCE FIRMS
Recently, the Commissioner for Insurance in Nigeria, Mr. Fola Daniel, expressed deep concern over the dominance of foreign underwriters in the lucrative oil and gas sector of the economy. This, he said, has put local insurance firms in a precarious situation, in spite of past directives by government that indigenous insurance underwriters should be given a larger share of the sector's risk coverage.
The unpleasant outcome, according to Mr. Daniel, is a hefty capital flight of $68 billion (about N1.1 trillion) paid to foreign underwriters.
The insurance helmsman, who made his disappointment known at a seminar organised to explore ways of taking advantage of the newly-passed Nigeria Oil and Gas Content Development Act 2010, said a situation where local insurance firms are compelled to play second fiddle in the critical oil and gas sector, does not bode well for the country.
He listed relevant sections of the Petroleum Act and the Local Content Development directive to buttress his argument. Part of the provisions, in particular, the Local Content Act, mandates that the bulk of all life, non-life and marine insurance risks in Nigeria's oil and gas industry be placed with local insurers. The directives, the insurance boss said, clearly indicate that no risk should be placed offshore without the approval of the National Insurance Commission (NAICOM), which is the insurance regulatory body in Nigeria.
The concern expressed by the commissioner for insurance is, undoubtedly, well founded. We share his views. Ideally, local insurance underwriters with the requisite competence and technical know-how should undertake risks exposure in such critical sector as oil and gas, which is the mainstay of our economy, accounting for about 90 percent of total annual revenue for the country. Official statistics indicate that this ought to be the case. For instance, total insurance risks exposure outside the Nigerian National Petroleum Corporation (NNPC) alone is in excess of $101 billion.
Of this amount, only 33 per cent is reportedly given to local insurance companies. Therefore, allowing foreign insurance firms to undertake the greater part of the coverage looks like a deliberate ploy to stifle the survival and growth of local insurers. It denies them ample opportunity to maximize business opportunities in such a critical area in their own country. The worry is that the present situation will not give local underwriters a chance to prove themselves.
Patriotism dictates that our government should take more than a passing interest in protecting local insurance firms. The authorities should, at least, ensure a level playing field, rather than appearing to favour foreign firms at the detriment of local ones.
However, we know why local insurance firms are not playing a dominant role in the oil and gas sector, today. The truth of the matter is that despite the enabling laws that seem to favour local firms, the fact remains that the oil and gas sector is a highly technical industry, driven by competency skills and the ability and sincerity of underwriters of businesses not to disappoint when it matters most.
In this regard, our local insurers still need to aspire to reach the high ethical and professional standard required in the industry. For them to leverage on the vast opportunities that exist in the oil and gas sector, our insurance firms must deepen their involvement in the sector with sincerity of purpose.
Competence is critical in the oil industry. There is widespread doubt that indigenous underwriters have capacity to cover risks in the sector. The firms need to improve their capacity to cover big risks.
However, it is regrettable that 54 years after the discovery of crude oil in commercial quantity at Oloibiri, our local firms, including insurance companies, are yet to stamp their feet on the oil industry.
Government should, therefore, ensure that competent local insurers maximize the opportunities that exist in the industry by encouraging and strengthening them to compete effectively with their foreign counterparts. We believe that the Petroleum Industry Bill, still before the National Assembly, can address some of the grey areas needed for qualified indigenous firms to find their strategic niche in the sector.