Chiamaka Ajeamo, [email protected]
Following the move by the Ship Owners Association of Nigeria (SOAN) to establish a special risk insurance entity to cover all marine risks, sources in insurance industry have kicked against the idea.
SOAN had earlier lamented that the association was losing multibillion dollars to a foreign insurance company known as Protection & Indemnity, (P&I) Club, London, as insurance coverage for protection and indemnity of vessels plying the nation’s waters due to low capacity of Nigerian insurance companies to absorb huge risks.
Hence, to control this, SOAN through its Chairman, Technical Committee, Lucky Akhiwu, had said, it was setting up a specialist maritime insurance firm in the manner of P & I Club of London in Nigeria to address the menace.
However, industry sources who spoke to Daily Sun said the move might not materialise because marine insurance is an international risk business where risks are shared between local and international insurers, adding that, the law guiding insurance businesses does not allow one jurisdiction to contain all risks.
Speaking to Daily Sun, 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 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.”
While quoting Section 72 (2) (f) of the Insurance Act 2003, which was on Insurance Domestication Provision, Thomas 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 the the National Insurance Commission(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 would give rise to more liquid firms that will be able to live up to their responsibilities, especially, payment of claims when due.
To this end, he 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 recapitalisation exercise, he emphasised, wouldß equally deepens insurance penetration, enhances insurance contributions to the nation’s GDP as well as contribute to infrastructural development of the country.
He said, “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 actualize their responsibilities under the contract of insurance.”
Speaking to Daily Sun as well, the Executive Director, Technical and Operations, Law Union and Rock Insurance Plc, Mr. Supo Sogelola, said SOAN do 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. However, they do not have authority 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 business.
Speaking further, he said: “Most importantly, why are they going out to get this cover? It is because covers granted by the Protection and Indemnity club in the United Kingdom are more respected than those in Nigeria since it is a form of international business. 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.”
The Managing Director of FBN Insurance, Mr. Val Ojumah, had, in a recent media report, said, the chance of survival of a specialist insurance company for marine risks is slim.
According to him, “If they succeed with a specialist company which I doubt could happen, it will not affect premium income so much because many insurance companies are not making much from marine insurance. The effect will be on individual companies, however, from industry perspective, there won’t be any loss to the industry.
“Also, if they want to set up a specialist insurance company there is nothing wrong with that, however, if they are focusing on only risk from Nigeria, they won’t survive. So there are two things that make insurance thrive, one is the law of large number, and two is the spread.
“Insurance survives on laws of large number. With focus on Nigeria alone, they will have limited number and no matter the amount of premium they charge, they won’t survive. Number two, they will not be able to retain a lot of liabilities because there is no spread, as such, the move will be dead on arrival. So, when you have your risk all concentrated in the same region, you won’t survive.
“The UK P&I Club survives because they take risks from all over the world and they spread the risk all over the world. When people sit down and say they want to do specialist insurance company in Nigeria, and retain all the risks, they have no idea what they are talking about. The ship owners complain that their claims are not being settled, but the truth is that most vessels in Nigeria are old and actually not insurable. Most reinsurance companies turn down the risk, but out of desperation, some insurance companies’ give them cover and they come back to complain when they themselves don’t meet the terms and conditions of the coverage.
“How many instances of default on claims settlement do they have? It is said that you go to equity with clean hands. Most of the complaint about insurance companies not paying claims is not correct. When you go and look at the paper work, you will find out that they have not met the terms and conditions of the coverage.”