The plan of the Ship Owners Association of Nigeria (SOAN) to establish a special risk insurance entity in Nigeria to cover all marine risks may have hit a brick-wall as insurance industry regulator and operators have kicked against such move.
Sources in insurance industry disclosed that such initiative will not see the light of the day, with the National Insurance Commission (NAICOM) not ready to grant a specialised insurance licence in that regards, at least for now.
Insurance operators, LEADERSHIP investigation shows, are unhappy with such move, preferring the shipowners continue to utilise the existing window available by placing their marine risks business through the local insurers. And with no backing from insurance industry, market observers believe, it’s an idea that is doomed to fail.
The shipowners, under the auspices of the SOAN, had said, the association was losing multibillion dollars on protection and indemnity of vessels plying the nation’s waters, to a foreign insurance company, Protection & Indemnity (P&I) Club in London, due to low risk retention capacity of local insurers to absorb these huge risks.
Chairman, Technical Committee, SOAN, Lucky Akhiwu, had said, it was setting up a specialised maritime insurance firm in the manner of P & I Club of London in Nigeria to address the menace.
While SOAN stance to retain more premiums in the local market is understandable, the fact that marine insurance, by law, is an international risk business where risks are shared between local and international insurers means, such a specialised outfit cannot exist. The law guiding insurance businesses does not allow one jurisdiction to contain all risks.
Reacting to the development, the Acting Commissioner for Insurance, Mr. Sunday Thomas, said, insurance is not meant for individual company or one jurisdiction to insure all the risks within its jurisdiction and that is why insurance is an international business.
According to him, “Just like we have in the aviation insurance, when we take risks, we do not contain all the risks here in Nigeria, we share it across the world. So, it is not tenable to say because of lack of capacity of local insurance firms, they want to establish a specialised maritime company. Will the company they are setting up be able to keep all the risks?
“Are they still not going to go abroad to share it with other jurisdiction? So, the reason behind the initiative is not solid enough as to why they want to establish a specialist insurance outfit when there are insurance firms in Nigeria that underwrite their businesses,” he said.
While quoting Section 72 (2) (f) of the Insurance Act 2003, which was on Insurance Domestication Provision, the NAICOM boss stressed that “all insurance or reinsurance businesses have been domesticated. All foreign facultative placements shall be by way of reinsurance only subject to the prior approval of the Commission.”
Explaining the provision further, he said, during treaty renewals or negotiations, available local reinsurance capacity must be exhausted prior to any foreign treaty placement, which implies that no entity can insure anything outside the country or set up without the approval of NAICOM.
“What this means is that low capacity will have to be filled except there is no capacity at all in Nigeria and the only institution that can determine that is NAICOM. Therefore, until NAICOM declares that there is no capacity for this, such entity cannot exist,” he pointed out.
Stating that the regulatory body is well aware of the low risk retention capacity of the local insurers, he noted that, the ongoing recapitalisation exercise in insurance industry will give birth to more liquid firms that will be able to live up to their responsibilities, especially, payment of claims as and when due.
To this end, Thomas said, most underwriters, post-recapitalisation, would have the financial muscle to absorb mega risks and able to reasonably retain some of those big risks, while also underwrite emerging risks, for the growth of the market. The NAICOM boss stressed that the recapitalisation exercise, will equally deepen insurance penetration, enhance insurance contributions to the nation’s gross domestic product (GDP) as well as contribute to infrastructural development of the country.
To him, “The industry is paying claims but we are also looking at emerging risks, the expected growth rate of the market and we want companies that are solid enough to actualise their responsibilities under the contract of insurance.”
On his part, executive director, Technical and Operations, Law Union and Rock Insurance Plc, Mr. Supo Sogelola, said, SOAN does not have the authority to provide insurance covers by itself but if they seek for one through the appropriate government agencies, they might be granted one.
“You cannot stop a man from protecting himself provided there is no regulated authority that can do that for him. As we are in Nigeria, only few insurance companies have cover for protection and indemnity and that is one of the reasons they want to establish such expert company in Nigeria.
thority to provide insurance covers but if they seek for one and they go through government agencies then, they may have it,” he said.
He suggested that insurers should approach the ship owners, dialogue with them to see what underwriters can do to support their businesses. “Even risks that are coming from outside Nigeria that are not even marine related, will inquire if you have an international backing. They will want to know whether you have technical partnership with an international organisation, and where you do not have, they simply take it off.”
LEADERSHIP had earlier reported that, with low risk retention capacity of Nigerian insurance companies, multinational companies, including players in the maritime sector, whose risks could not be insured in the local market, had taken the insurance risks worth N16.91 trillion abroad on a yearly basis.
However, the nation’s underwriting firms were able to retain N37.69 trillion Sum Insured in the local market. The N16.91 trillion risks ceded abroad means that the capacity of Nigerian insurance industry is restricted due to the fact that some insurers have low capitalisation, hence, could not absorb more risks.
LEADERSHIP findings reveal that the country has less expertise in some evolving risks, hence, could not underwrite them and had to cede them abroad. Findings shows that Nigeria is equally loses billions of premium income to the foreign insurance firms in this process, hence, making it difficult to realise its targeted N1 trillion annual premium income.