NNPC insurance premium crashes by $15m

By: BADEJO ADEMUYIWA

　

Three years after the exposé on the inflated insurance of the Nigerian National Petroleum Corporation (NNPC), the rates for 2013 renewal have fallen and the premium for the risk has reduced by $15 million.

From the $86 million paid on the Consolidated Oil Programme (CIP) in 2012, the premium fell to $71 million in 2013, saving $15 million for the nation.

The premium, which was paid in March before the April 1 commencement of cover marks the first time that the NNPC, Nigerian largest insurance account, will pay premium ahead of commencement of cover.

This signals full compliance with Section 50 (1) of the Insurance Act 2003 that stipulates payment of premium before attachment of cover, otherwise known as "No Premium, No Cover."

An NNPC official, not authorised to talk on the issue, told BusinessDay that it was amazing that the rates and premium of the risks could decline as previous primary insurers had ruled out such reduction.

"The reduction gotten this year shows that a lot has happened in the past because the assets have even increased from what it was some years back when higher rates were charged, while the insurance coverage is still the same as previous years. The $15 million saving this year by the new insurance broker has cast doubt on the sincerity of the former handlers who kept the rates going upward," according to the official.

NNPC premium has been on the increase since 2001, when Jardin Lloyd Thompson (JLT) reinsurance brokers, United Kingdom, and YOA insurance brokers, its Nigerian representatives, took over its insurance. It raised concern in 2010 when the premium jumped to over $74.5 million from the $53.5 million that was paid in 2009. It again increased to over $75 million in 2011.

Energy insurance experts have over the years decried the premium being paid in the past 12 years, saying such was unjustified in this region, which according to Robert Hartwig, president, Insurance Information Institute, New York, has low volatility, stable natural environment and calm waters.

The fall in rates and the premium for this year, according to sources at NNPC, was due to competitive bidding, strategy and capacity of the negotiation team, and the insistence of the board of the corporation that there must be a reduction in the rates.

Unlike previous bids when only JLT reinsurance brokers quote rates for the risks, this year’s renewal was different as the NNPC board threw open the bids in which five reinsurance brokers from the United Kingdom participated on March 18, at its headquarters in Abuja.

Price Forbes, one of the leading medium-sized reinsurance brokers in the United Kingdom, emerged the winner and broke the 12 years of monopoly OF THE RISKS by JLT and YOA brokers. YOA is owned by Yinka Omilani, the former vice-chairman of the ruling People’s Democratic Party (PDP) in the South-Western part of the country.

All the parties involved including NNPC declined comments. Tumini Green, NNPC spokesperson and Ayo Banmeke, general manager, insurance, did not respond to calls and messages requesting for their comments.

However, BusinessDay’s findings at the Lloyds in London show that Leverage Insurance Brokers, assisted by Hogg Robinson Insurance Brokers and Ark Insurance Brokers, negotiated the renewal and secured the reduction in rate.

The reduction confirms BusinessDay’s report that the premium being paid on the insurance of NNPC over the last 12 years was being inflated.

BusinessDay in a serial published between June and September 2010, exposed how the rates were being loaded to increase the premiums between 2001 and 2010. The situation continued in 2011 and the 2012 cover, which expired March 31 this year.

This development also vindicates Marsh Energy, the world’s largest reinsurance broker, who, on the heel of BusinessDay’s publication, wrote to the Nigerian government on July 8, 2010, that $25 million could still be saved from the premium paid for that year by the NNPC.

Alyson Thompson on behalf of Jonathan Raven, its senior vice president, signed the letter.

Interestingly, Hogg Robinson was part of the team that got the reduction for this year, and was the insurance consultant to the NNPC for 11 years of the era of the abysmal high rates and premiums.

Interestingly too, Scor SE of France, the same reinsurer that was involved in that era when high and unjustified premium was being charged also agreed to the new rates pushed by the new negotiation team led by Leverage Insurance broker.

Breakdown of the handlers for this year shows Leverage Insurance broker as the lead broker. On the oil components of the risks are 44 insurance brokers including Hogg Robinson and Ark Insurance brokers. The non-oil component of the risk has 45 insurance brokers.

The leadership of the primary underwriters also changed as Custodian and Allied Insurance with its much-improved liquid and physical assets became the leader and edged out Leadway Assurance. All the 37 operating insurance companies are to queue behind Custodian and Allied Insurer in line with the Local Content Act.

Breakdown of the structure of the cover shows that The Wheel, NNPC captive insurer in Guernsey, a British Island, still retains about 55 percent, a larger chunk of the risk, while the local underwriters are to handle the remaining 45 percent cover.

Source: BusinessDay