By Modestus Anaesoronye
To enable local insurance companies build capacity to cover terrorism and kidnappings, government must provide intervention fund, analysts have said.
The analysts say this has become necessary in view of growing insecurity in the country, exacerbated by the activities of terrorist group, Boko Haram.
Sam Onyeka, assistant director of Inspectorate, National Insurance Commission (NAICOM) said no insurance market anywhere in the world can comfortably write terrorism risk without the support of the state.
Onyeka, who described the role of government from the perspective of public risk mitigation, said it was a necessary intervention to make the cover available and also sustainable.
He observed that public risk mitigation makes insurance cover available and sustainable, adding that this could come in the form of premium subsidy, similar to what the Nigerian Agricultural Insurance Corporation(NAIC) is doing with agricultural insurance, where government provides premium subsidy for framers, or in the form of public private partnership."This will enhance market penetration and support insurance sector contribution to the nation’s GDP,"he said.
Citing other countries where this has been done successfully, he pointed out that in the US there is the National Flood Insurance Programme, where the state offers capacity and the products are distributed by private companies.
"In France you have the Caisse Centrale de Reassurance, offering last resort for risks considered as "uninsurable" , such as floods and earthquakes, and there is compulsory private insurance with subsidised government reinsurance option."
According to him, in Germany there is the Terrorism Insurance Company of Germany, being the insurer for terrorism risks exclusively, which has a pooled capacity of 2 billion euros offered by its shareholders, made up of several German insurance companies and backed by federal capital guarantee.
As was also the case in many other countries, German insurers at the end of 2001 refused to renew terrorist insurance beyond the expiration date of existing contracts. But after more than six months’ discussion between representatives of the insurance industry and the German federal government, agreement was reached on the creation of a public-private partnership. The partnership is based on the creation of a new insurance company covering terrorism only, Extremus, incorporated on November 1, 2002.
Onyeka added,"There must be an intervention fund for insurance to grow in Nigeria, and most especially now that we are confronted with growing terrorism and kidnapping".
Other Analysts looking at the potentials in the Nigerian market advise that while government continues to improve on her efforts to clamp down on Boko Haram insurgents and other terrorism activities, there is a need to strengthen insurance protection as obtains in developed markets.
Wole Adetimehin acknowledged that there were a handful of ongoing talks between local insurers and their foreign counterparts on how to develop products for special risks like terrorism, kidnapping and floods. He however doubted that these would make a headway without an intervention fund.
The fund, he said, would provide guarantee to local insurance operators willing to take up this risk, which could be too hazardous for private operators. "The claim incidence is huge, and that is why an intervention fund would need to be structured for the local market.
"This is why Nigeria, being one of the frontier markets for investment, must take insurance very seriously by ensuring that there are polices and products to cater for terrorism, kidnapping and ransome, while efforts to improve the security situation continue."
Meanwhile, with Nigeria’s Continental Re, having made some progress in acquiring some retrocession capacity for terrorism, the market expects that talks between some foreign reinsurance brokers, including Afro-Asian Insurance Services, a UK-based firm, would materialise to further boost local capacity.
Chris Davis and Peter De Kersaint Giraudeau, both senior brokers and account executives, who led the Afro-Asian delegation to Nigeria in 2013 noted that there is huge potential for growth of insurance and reinsurance in the Nigeria market.
They said that though the issue of terrorism and kidnapping in the country are bad developments, insurance coming to absorb the shock by providing risk in these areas would help stabilise the economy and make the environment conducive for local and foreign investments. If there is no insurance and an effective means of compensation in the event of loss, many investors would not feel comfortable to do business here, Chris said.
He said, "Nigeria is going to be the hub to penetrate other parts of Africa, where you have similar incidence, particularly political violence and piracy, which we also have a lot of expertise in".
Terrorism risk before now was not given consideration, first because it was new in the market; secondly, because it is part of exclusion and thirdly, because it is usually funded by government in some jurisdictions because of the size of risk exposure, but has however taken a new dimension.
Source Businessday
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