ï»¿The insurance industry in the West African sub-region is tapping into windows of opportunity by re-organizing and re-inventing for full participation in the oil and gas insurance
Insurance sector see a bright future in the big risks for companies that are innovative and proactive enough to deal with the challenges ahead.
Nana Boakye Asafu-Adjaye, Managing Director of Ghana National Petroleum Corporation (GNPC) said for insurance companies in the West African market to adequately respond to the challenges. They must first of all, design appropriate risk management systems for the oil and gas industry.
Obviously, he said that the discovery of oil and gas in our sub-region has raised expectations of great financial bonanza for our sputtering economies.
He recalled that oil and gas discoveries in a number of African countries have been accompanied by an equal measure of blessing and despair to the nations concerned. The unfortunate oil-related problems in Nigeria, Africa’s leading oil producing country has been an ever present reminder of what can go wrong when a potentially beneficial national asset is dissipated through mismanagement and corruption.
The discovery of oil and gas and the enormous financial windfall that accrues to the respective governments brings with it attendant challenges and opportunities
â€œIt is almost an understatement to say that any business that requires the investment of huge financial resources and is at the same time inherently fraught with tremendous risk of loss of property and/or life as is found in the oil and gas industry should make risk management in general and insurance in particular, an integral part of their financial planning and management systemsâ€.
Even at that, the GNPC boss who was represented by Mr. Andrew Badu Lartey, Director of Administration of the corporation in a paper in delivered at the event titled, ‘Oil and Gas Discovery in West Africa In Relation To National Development: The Insurance Industry Response to Risk Management Concerns’ believed that insurance industry need to address the following important issues:
Identification and understanding of the nature of the hazards for which risk management solutions need to be designed;
Identification of the assets to be insured, expertise in properly estimating potential loss exposure, as well as the type of insurance cover appropriate for the assets;Â Identification of the key parties (i.e. investors/owners, joint venture partners, contractors, sub-contractors, operators, etc.) with insurable interest in a particular oil/gas project and the capacity of the local insurance market, both financially and in terms of technical expertise, to underwrite what is arguably a very complicated risk to rate;
The other issues that insurance companies should address, according to him, are: The availability of adequate safeguards to ensure appropriate levels of local participation in all insurance cover to minimize premium flight from the local market; Designing appropriate training programs to transfer technology and knowhow to local underwriters; and Arranging appropriate re-insurance relationships to complement local capacity and also deepen local technical expertise.
Nigeria has an estimated reserves of 36,220,000 and producing at 2,167 /bpd; Angola’s reserves is put at 8million with a production level of 1,695/bpd; Cameroon has 400,000 with 84/bpd and Chad 1,5million with 150bpd; Congo Brazzaville 1,600,000 at 240/bpd; Equatorial Guinea, 1,100,000 at 320/bpd; Sudan, 5,000,000 with a production of 472 and Gabon, 2,000,000 at 230/bpd.
Others are Ghana with a potential of 600,000 to 1,3million at 40 to 150/bpd; Ivory Coast has 100,000 at 30/bpd and Mauritania, 100,000 at 26/bpd
The above data he said indicated that Africa accounts for 12.5% of the world’s total oil production and has been the focus of intensified exploration and investment activities in the oil and gas sector during the past decade.
Though he said that the capitalization of insurance companies in the West Africa is not yet adequate for oil and gas
â€œToday, if you asked me if our national and sub-regional insurance markets have the financial capacity, the technical know how to respond to the insurance needs of the oil and gas industry within or borders, I will say emphatically, â€œNo!â€.
It is expected that even with significantly improved capitalization of the local insurance companies the local industry can benefit from collaboration with experienced players in the oil and gas markets overseas.
The capitalization of our local insurance and reinsurance companies, he noted, are woefully inadequate, adding that insurance regulatory authorities in the various countries need to significantly review capital requirements of the insurance companies operating in their countries upwards.
Again, countries in the West African should incorporate stringent requirements for local content and participation in all oil and gas insurance contracts.
These overseas markets can over time help nurture our local markets through well structured relationships that emphasize technology transfer and building capacity.
The international market is dominated by underwriters associated with Lloyd’s of London; Major European insurers and reinsurers such as Munich Re, Swiss RE, SCOR, Hannover, Axa, etc.
There are also other specialty oil and gas underwriters based in Singapore, Middle East, Australia and Bermuda.