FG loses N44bn as insurers breach local content law
Nigeria’s local insurance firms lost about N81.8 billion to their foreign counterpart instead of N37.8 billion as provided by the relevant local content law on oil and gas insurance in 2022.
The law stipulated that 70 per cent of total premium on the oil and gas sector insurance should be undertaken by the local insurance firms while their foreign counterparts take 30 percent.
Findings from data at the National Insurance Commission, NAICOM indicated that while the local firms actual underwriting was 35 per cent, which translated to N43.9 billion out of the total N125.7 billion premium, their foreign counterparts took 65 per cent which translated to N81.8 billion.
Details of the 2022 oil and gas insurance shows increasing disproportionate underwriting in favour of foreign insurance firms quarter-on-quarter.
In the first quarter of 2022, Q1’22, oil and gas premium stood at N50.2 billion, with a total of N25.2 billion or about 50 per cent transferred to foreign companies.
In Q2’22, oil and gas premium declined to N21 billion, but ceding to foreign counterparts rose to 71.4 percent or N15 billion.
In the Q3 premium rose to N24.7 billion, and ceding to foreign firms rose to 72.5 per cent amounting to N17.9 billion.
Decrying the development, NAICOM stated that the oil and gas portfolio lamentably remained a challenging angle in the market owing to its nature of enormous capital and professional requirements.
It will be recalled that the federal government had set a target of 70 per cent local content for underwriting of oil and gas risks, implying that 70 per cent of all insurance risks associated with oil and gas business including prospecting, exploration, drilling, constructions, shipping, distribution, marketing, and transportation are to be insured in Nigeria with registered Nigerian insurance companies.
However, energy risks are still substantially insured abroad due to low capacity in the local insurance industry.
Speaking on the situation, Deputy Managing Director, Technical of Anchor Insurance, Mr. Adebisi Ikuomola, said that in response to the high level of premium export emanating largely from oil and gas related risks, Nigeria uses laws and regulations to drive local participation through graduated domestication of these insurances. However, there is still a long way to go.
He stated, “Despite the local content laws and regulations established in Nigeria, insurance companies are yet to fully take advantage of the opportunity to effectively position themselves as major players capable of leading foreign firms in the underwriting of oil and gas business.
“The mandates to companies in the upstream petroleum sector to cede their insurance business to local insurers, is in line with efforts to maximise the participation of local insurance companies in the oil and gas sector.”
