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Aircraft Insurance In Nigeria: The Unnecessary Hiccups



It is absolutely frustrating to acquire and operate an aircraft in Nigeria because of the senseless hurdles created by the National Insurance Commission (NAICOM). Everywhere else on planet earth, an airline or an aircraft owner can simply use an insurance broker to source the best and most affordable insurance underwriters to place the insurance requirement of the airplane. No frills. But in Nigeria, a few years ago, the local content law became effective. The law simply states that until local Nigerian companies are unable to offer such services, nothing should be vested in foreign companies without local input. Many companies and their host countries identify and target local content objectives as ways to create and share value from oil and gas developments.

Host countries may use local content as part of an industrial policy aimed at delivering benefits beyond the payment of royalties and taxes. Many oil and gas companies take a strategic approach to local content efforts in recognition of the wider business benefits of creating and sharing value between themselves, local communities and countries. This has no relevance to aircraft or other equipment insurance cover.

This draconian law has been expanded to other industries in Nigeria, which has led to inefficiency in productivity and, many fake local enterprises have sprung up in the name of offering services they are visibly incapable to handle. It is no secret that very few insurance companies in Nigeria are adequately funded to underwrite huge liabilities; they will not be able to pay for claims in the wake of an occurrence.  NAICOM has closed its eyes to the deficiency in the industry, with fake and unregistered insurance companies claiming authenticity.

Nigeria cannot continue to foster rules and regulations that can strangle its fledging industries. Insurance is a vital part of any industrial growth in case of losses, and perhaps, unexpected accidents. There is no other surer process than a fully insured facility that will protect the investments of the entrepreneur, but the law must understand the limitations of our economy to handle huge compensations.

According to Carly Ranger of Infiniti Aviation, the reality is that with every ‘risk’ comes the potential for loss and it therefore goes without saying that with every aircraft the potential for loss is inherent, but there are certain risks that are more prone to loss than others. Insurance companies strive to align themselves with a client base that share similar risk ideologies, and who are conscious of the consequences to themselves and others of not controlling the inherent risks in their business.

So, what defines a ‘good’ risk? When assessing a risk cognizance is given to the experience of the operator and pilot(s) as well as their approach and attitude towards both the operational and the occupational hazards that they face. There are numerous ways in which the insured or operator can mitigate the potential for loss; the experience of the pilot, both in respect of overall experience as well as experience on the aircraft type being operated, is an important part of risk management. The continued training of pilots is equally important. Societies are becoming increasingly litigious, with personal damage awards paying out higher levels of compensation, which the Nigerian insurance market is obviously incapable of handling huge claims, hence the need to spread the risk abroad. But the law must be loosened to allow healthy competition for the benefit of the insured.

For airlines, the story is much more than the other industries. An aircraft is constantly at risk, even when it is parked; therefore, the necessary insurance cover must remain active at all times. And, for an insurance company in Nigeria to undertake the risks, it must spread them through other more capable underwriters, mainly in the United Kingdom, United States, or the huge Asian markets. But, appalling is the senseless law by NAICOM that its approval to reinsure must be sought and granted before placing it in foreign markets. If an insurance broker in Nigeria reinsures an equipment abroad, in a more formidable market, why must NAICOM give approval before such an investment?

The process has frustrated the majority of our airlines, especially as our local insurance firms are greedy with cut-throat premiums. The freedom to buy affordable insurance cover from viable companies abroad is hindered by the local content law, which most of the insurance brokers in Nigeria have found as a leverage to extort money from airlines. It is also becoming very dangerous since some companies in Nigeria simply do not pay the underwriters until there is an occurrence that warrants claim.

The idea of NAICOM supervising the activities of Nigeria’s insurance firms is noble, but expanding the law to rigidity is unnecessary and onerous for those who take huge risk to invest in airline business in Nigeria. Why must everything in Nigeria be complicated? Why can’t we simply follow other countries’ business models and mechanisms to ensure compliance and flexibility to ease the process?

One of the biggest factors for the incessant failure of airlines in Nigeria is the rigid, draconian laws we proclaim. It has become so difficult to obtain a simple driver’s license in a week because someone must gain from the process. Therefore, the stiffer the law, the better for those who must self-aggrandize.

Investors are massively moving out of Nigeria because the laws governing the mode of doing business have become unbearable and difficult to comply. A simple aircraft radio operating license takes over three months to process. This license is obtained within five minutes in the United States and other countries.

Insurance underwriters abroad are unease about insuring an equipment registered in Nigeria; NAICOM approval takes weeks to obtain. Government efforts to ease the dynamics of doing business in Nigeria, which was given executive order last year by the vice President are visibly wasted. Nigerians will not comply if the orders are some form of impediments to illicit gains of the director in charge of the agency. Yes, the government intentions are genuine for economic development, but how does enforcement prevail? Corruption has reduced our sense of normalcy, with norms and guided laws being underrated at every step of the efforts.

The cost of insuring an aircraft, its passengers, and third-party liabilities is enormous, yet, it is very difficult to get anything done through Nigeria. NAICOM can make it easier for all the aircraft operators in Nigeria to achieve a healthy operational environment if it amends the regulation to simply allow operators to source their insurance requirements from either the US or the UK markets. Enforcing the law should rest on the Nigerian Civil Aviation Authority (NCAA), the agency directly responsible for the safety oversight of the aviation industry.

Authentic aviation insurance is desirous by any aircraft owner because of the unpredictable risk of accidents. Airline owners have heavily invested in the industry to reap some rewards. They will ensure that adequate risk protection is in place. NAICON can simply make it much easier for Nigerian businesses, especially in a drained economy like ours.