While some insurers in the oil and gas business are reaping bountifully from the Nigerian Content Act, others say the gains are very minimal.
The Nigerian Content Act, a legislative instrument that was meant to enhance the level of involvement of Nigerians in the country's petroleum industry is more than five years old. Being enacted on April 22, 2010, various sectors of the economy are critically examining the impact of the act in the growth and development of their sectors.
While some are currently counting their blessings one by one on account of positive impact of the act in their operations and development of their sub sector ,others said they only recorded minimal gains from the act five years after its enactment.
Recent research reports said overall, the act has achieved 87 percent level of growth in the operations of subsectors concerned.
It pointed out sectors that have achieved much from the act as engineering subsector which achieved as high as 90 percent level of growth,fabrication subsector with 50 percent growth and manufacturing sector with only 20 percent level of growth.
For the insurance sector, there is mixed feelings on the level of growth achieved in the face of the act. While the broking arm of the industry put their level of growth in the face of the act at 70 percent, insurance underwriters said the act only achieved 25 percent growth in oil and gas business participation for them.
In a short telephone chat with ThisDay from Amsterdam, the president of Nigerian Council of Registered Insurance Brokers (NCRIB) Mr Ayodapo Shoderu said insurance brokers have recorded moderate achievement in handling oil and gas insurance account since the enactment of the local content law.
According to him, they are currently enjoying the patronage of oil industry corporate accounts as well as that of the Nigerian National Petroleum corporation (NNPC) unlike before.
Speaking from Underwriters' experience, Mr. Sunday Thomas Director General Nigeria Insurers Association (NIA) said the impact of the local content act in the operations of insurance underwriters has been very good.
According to him, local retention has increased indigenous insurance industries' participation in oil and gas over the years from less than 5 percent to about 25 percent.
He said though the market is expected to have benefited as high as 70 percent, knowledge capacity of indigenous operators has increased within the period.
A researcher in one of the Reinsurance firms in the country said overall, Nigerian content has increased the patronage of local insurers by international oil companies (IOCs) and other indigenous oil and gas companies.
He however said what often happens thereafter is that most of the insurance companies can't provide all the needed cover, but take the business and spread it to their counterparts in Nigeria and overseas due to their business limit (capacity) and volatility of oil and Gas business. He said this has limited the benefits derivable from the act by indigenous insurers.
The local content policy initially required oil and gas business operators in Nigeria to ensure that local insurers insure at least 10 percent of the risk and the rest taken abroad. It later increased this to 45 per cent and then to 70 percent after which the rest can be insured abroad.
To ensure that the local content law is made effective through effective monitoring of business operators, the Federal Government has put in place the Nigerian local content Development and monitoring board to supervise operators and approve businesses to be insured outside Nigeria. The whole essence is to ensure that Nigerian companies take active part in the juicy oil and gas businesses and build capacity through what experts referred to as domiciliation principle.
Domiciliation policy, according to insurance experts is a framework which enables local players build capacity through a relationship alignment with foreign counterparts who are more experienced and knowledgeable in oil and gas insurance underwriting while playing active part in the sector's transactions.
It will be recalled that before the act came in place, insurance industry operators have been agitating for inclusion in the insurance of oil and gas in the country. The business has always been taken abroad by oil multinationals who preferred to use their captive firms in their home countries than using Nigerian insurers.
The reason they often give is that indigenous insurers lacked both human and financial capacity .They had often pointed out low capital base of the industry as a major impediment.
According to their argument, the initial capital base of all the insurance companies put together cannot insure one oil rig of an oil firm.
In swift reaction to this, the present leadership of the regulatory body the National Insurance Commission led by Mr. Fola Daniel slated recapitalisation of the industry as one of its first agenda .
This saw the upgrading of the minimum capital base of the industry to N3 billion for general business,N2 billion for life N5 billion for composite and N10 billion for reinsurance companies to tackle the low capital base problem.
After this, the issue of capacity of the indigenous firms came in but the indigenous insurers had argued that it was not acceptable excuse for starving them of the much needed juicy oil and gas account .They argued after all that in those countries they take the businesses to , no single insurance firm insures any business alone but share it among themselves according to each company's capacity adding that if the businesses were given to them in Nigeria they can equally share it among themselves.
The former Managing Director International Energy Insurance Mr Jacob Erahbo, who spoke on the argued that there is nothing those foreign firms they push their businesses do that Nigerian underwriters cannot do.
He argued that by giving those excuses, oil multinationals in the country were just deceiving themselves.
It was in the process of these arguments and agitations that the idea of local content act came into being. it was signed in April 2010 with a mandate by federal Government to see to increase in local content in oil and gas business to 45 percent and later to 75 percent.
But even in the face of the act, insurance industry did not commence benefiting from it immediately .On its part, the National Insurance Commission did not rest on its oars.
A lot of efforts and pressure were put on the oil industry operators by the insurance industry.
The National Insurance Commission (NAICOM) in its effort in this regard, released the guidelines on oil and gas insurance.
Also two years back, NAICOM said it will establish Nigeria Oil and gas Insurance pool to enable indigenous insurers participate in the insurance of oil and gas businesses in the country and take charge of insurances of oil industry multinationals operating in the country which have for years remained the preserve of foreign insurers.
The commission said the pool would take off with $20m capacity fund adding that each participating company in the pool would pay $250,000per line.
To make the proposed pool more effective than the previous ones which the industry players formed some years back without achieving much success, the commission appointed a fifteen man interim committee headed by the Managing Director of Sterling Assurance company and immediate past president of Chartered Insurance Institute of Nigeria (CIIN) Mr Fatai Lawal to head the committee and to work out modalities for the establishment of the pool.
The commissioner said establishment of the oil and gas pool has become necessary because of opportunities inherent in oil and gas business for insurance operators especially as the insurance industry has not been able to access the full benefits of the local content policy of the Federal Government three years down the line.
It will be recalled that that in the years past, the insurance industry within Nigeria and across the African region had experimented on three major oil and gas insurance pools with the intention of increasing their participation in the juicy oil and gas business.
These are the NOEIP pool established by the then Federal Government owned NICON Insurance Corporation in 1995.The pool was established through the Nigeria Insurers Association with the intention to increase local retention of oil and gas risks and prevent capital flight through the retention of premium locally.
The NOEIP pool which was later transferred to Niger Insurance after the privatization of NICON could not see the light of the day despite all efforts to make it work by the members.
There were also the FAIR Pool, and the African Oil and Energy Insurance Pool which were established with the objective of increasing retention capacity of the insurance industry in Africa, curb capital flight by way of reinsurance premium from the continent, develop technical capacity for oil and gas insurance on the continent, as well as exchange information among others. The effectiveness of these towards increasing the participation of African insurers in the huge highly technical and juicy oil and gas business is still questionable as greater portion of the business is still insured by insurance operators in abroad.
In other words these pools obviously have not achieved their objective of ensuring that indigenous insurers secure more opportunities in participating in the oil and gas insurance in Nigeria and within the African region.
Currently, the Nigerian oil and gas pool is yet to fully take off and as part of effort to ensure that underwriters enjoy fully the benefit of the local content.
Meanwhile insurers said they are hopeful that in the next four years, the local content act would have benefited them more than what is on board now but overall the insurers acknowledged that things have got better for them now than before regarding participation in oil and gas insurance.
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