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Nigerian insurers should drive local content flow

By Ifeanyi Ugwuadu

Even with the expected peace in the Niger-Delta resulting from Federal Government’s amnesty, insurers are still wary of the region. FBN Insurance Brokers CEO, Val Ojumah, an acclaimed international broker, advises local insurers should still stay away from the business in that region. Ostensibly for reasons of the special skills needed for the peculiar risks.

He speaks of the state of energy business in Nigeria and what needs to be done to achieve a substantial leap and turnaround in the local content initiative of government.
Excerpts:

What is the state of energy insurance in Nigeria?

I have not seen any change in the state of energy insurance in Nigeria. Looking at it practically, the sources of energy insurance in Nigeria are several. Number one is the government through NNPC and NAPIMS.  Number two is the multi-nationals and finally private producers excluding the oil services companies. For NNPC and NAPIMS, nothing has changed. As you are probably aware, they are following the local content policy as practically as possible.

In the last couple of years, the practice has not changed. They’re still using the same reinsurance brokers; the business is still going to the same market internationally and the primary underwriters in Nigeria are still the same names.  But most joint venture projects, which is between NNPC and the multinationals, the insurance go to NAPIMS and follow the same system; the same market, the same primary underwriters following the same method of taking in what they can and shipping out the excess. And when you look at the private producers, many of them are using local companies that have capabilities and FBN Insurance Brokers is involved in some of that, IBN and Hogg Robinson are also part of it. But their manner of buying energy insurance is not the same thing as what NNPC and NAPIMS are doing. The reason is that multinationals have interests in captives not registered in Nigeria.

So, they use insurance companies registered in Nigeria as either fronts or those companies take a proportion of the risks and the proportion they cannot take, they transfer abroad. This represents the concept of local content as initiated by the Federal Government. If you look back three years, nothing has changed.

How do you envisage the correct channel for local content?
What the reinsurance brokers are doing abroad, there are a thousand insurance brokers in Nigeria who can do essentially the same if not better. Let’s say you are routing the business through  Nigerian brokers and underwriters to the international market, that is the way it should go. The way it’s going now involves the reinsurance broker through a lead underwriter outside bringing it into Nigeria. The business will still go international. Certainly, I am not advocating that risks generated in Nigeria should be retained here. But the channeling makes the business far more expensive than it should have been.

I do understand and agree that primary insurance brokers not registered in Lloyds cannot do business at Lloyds. There is what you call producing brokers and placing brokers. Let Nigerian brokers be the producing brokers which means they will originate the business. Thereafter, let them choose any placing broker they wish to work with anywhere in the world. That is the channelization I am talking about. What is going on now is a reversal. For emphasis, the reinsurance brokers are appointed by the client or by the government who then decide whether to bring in a primary insurance broker in Nigeria and determine what he earns and may even determine what he does.

In that kind of situation, the local market will never grow because they have no control. Yes, the underwriters that were not involved in energy business previously are getting involved these days: it looks like its looking good and bright. Everybody cannot be in the same class of business. The fact that it is energy does not mean all Nigerian underwriters should be writing energy risk. Why should everybody get involved with it? Why don’t we create a special market for some companies who have the resources and the market for energy risks Those are the people who can take whatever they can take before the balances are shipped abroad.

What advantage does this your proposal have over what exists today ?

The advantage of my proposal over the other is that a primary broker has responsibility over the placement. When you have responsibility over the placement, you’re involved with every bit of detail including the wording, agreeing the terms and conditions and choosing the reinsurance companies which guarantees knowledge and control. This is actually the real purpose of local content — not just retaining the risk. Without knowledge you can’t control it. What we are doing now is to participate in the process and we can never control the process the way we’re going; we will never learn. Even the documentation of the business doesn’t get to the primary underwriter in Nigeria and means we don’t get the real meat of the business.

How does the market benefit from this proposal  ?

The more knowledge and control you have in a given business, the more you can impact on the market and your colleagues and people come to learn the business, have better control and take more of the business. If you’re taking one per cent today, you have a reason to take 2 per cent, 3 per cent and so on.  But today, the proportion left to the market is imposed.

Does this prescription have any comparison around the world  ?

Territorial differences do exist; every environment has its own peculiar circumstance. our own was born out of the fact that we have crude oil here. Angola for instance only started yesterday. They don’t even have the local professionals to train in this area. There is certainly no model in Africa we are following.  Perhaps, if you look at the Middle East, they have insurance companies who are taking these risks today.

How then do we get around doing the right thing ?

A lot depends on the government. I am sure those in government know the right thing. When personal interest is removed from the process and public goals placed above personal goals, much can be achieved in the local content.

What challenges does Niger-Delta present to local insurance  ?

The risks emanating from the Niger-Delta will always be politically motivated. The international insurance market label it as terrorism risk or political risk. Whichever one we want to classify it, my advice is that our local players should not go into it at all. There is a special market for it — its not every insurer that takes the risk.

Do you subscribe to consortium bidding in oil and gas business?

I do not subscribe to any consortium arrangement.  When you are bidding, terms and conditions for bids are clear; they are based on your capabilities. These capabilities are defined and I don’t see the reason or need for a consortium because the companies are operating as individual entities. There is something we know in insurance as co-insurers: if I win and have the responsibility to ensure that I exhaust the capacity of the market before going abroad and I can demonstrate that I have exhausted the local market capacity, why then do I need a consortium? Today, I can tell you that NAICOM is taking the bull by the horn; they’re showing more responsibility in this matter considering my personal experience with them. I am more convinced today that you cannot take any risk abroad without exhausting the local capacity or putting substantial part in the local market.

So, today NAICOM is playing a major role in increasing local capacity than they were doing in the past.  I don’t subscribe to consortium arrangement.
Has there been any growth in capacity in energy business and other sectors in the last three years?

When you want to look at growth, you have to look at from different perspectives; are you looking at a particular risk. From instance, in oil and gas there has been some growth— maybe not as significant as we would have loved it to be but there has been some growth.

What can be done to accelerate growth?

Let us change the flow in the way I have suggested.  We try to change the channelisation of the business in the energy sector and then underwriters will witness the advantage of that approach. I am sure they will be interested more in taking control than allow themselves to be given peanuts.  They will also see the need to put more resources into the business.

Do you agree with the theory that when our people control a business, undercutting and other pricing issues arise?
I don’t agree with it. I have continued to say that there is nothing like undercutting.  I have also said that tariff does not work anywhere in the world because it has a tendency of protecting lazy people. Let’s look at this situation; I have a car to insure and as a broker I invite four insurance companies to give me a quote. If there is no tariff, there’s no way the four insurance companies will give the same price.


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