The insurance companies in Nigeria have not been fully utilizing the Nigerian Oil and Gas Industry Content Development Act to provide risk indemnification and transfers for the Nigerian oil and gas sector, this was revealed by experts who spoke at the recently concluded summit organized by Oriental News with the theme: “Building Local content synergy between the oil and gas and the insurance sectors in Nigeria”.
The experts noted that insurance companies in Nigeria have not taken advantage of the provision of the Nigerian Oil and Gas Industry Content Development Act, which emphasizes that insurance risk in the Nigerian oil and gas industry must be fully harnessed before consideration is given to offshore insurance companies.
They noted that the Petroleum Industry Act (2021) has scaled up investment opportunity oil and gas industry in Nigeria Developing insurance products for the oil and gas industry can create new business opportunities for insurance companies. Insurance companies that offer specialized products for the industry can attract more business from oil and gas companies and increase their revenue.
Dr. Muda Yusuf, Director/Chief Executive Officer, Centre for the promotion of private enterprise, in his presentation expressed disappointment in the insurance sector’s contribution to the country’s GDP, which he said is a N647 billion industry. He noted that this is a mere 0.32% of the GDP, which is not a significant contribution in a N202 trillion economy.
According to him, while the insurance industry contributes to economic efficiency and fosters economic growth in several ways, such as improving risk allocation and boosting productivity, the sector is struggling to create economic profit, failing to optimise the opportunities available.
He said, “This underscores the fact that the sector has enormous prospects for growth amid the huge potentials that exist in Nigeria. The insurance sector contributes to the growth of the economy through the provision risk indemnification and transfers. The industry players also deliver value as institutional investors in the economy.
“The oil and gas sector is the life wire of the Nigerian economy. The value of the sector is N12 trillion, based on its contribution to GDP in 2022. Although the sector contributes just about 7% to Gross Domestic Product, it provides about 90% of the foreign exchange earnings in the economy.
This foreign exchange earnings are critical for Nigeria’s foreign reserves, exchange rate stability and balance of payment position.
He therefore noted that the Nigeria Oil and Gas Industry Content Development Act has already provided a robust legal and regulatory framework for synergy between Insurance Industry and the Oil and Gas sector in Nigeria.
This heavy lifting that been done by this legislation, presents opportunities for the Nigerian insurance sector harness the full potentials available in the oil and gas sector.
Muda emphasised that the provision of the law which states that “No insurance risk in the Nigerian oil and gas industry shall be placed offshore without the written approval of the National Insurance Commission which shall ensure that Nigerian local capacity has been fully exhausted”, is a huge market window for the insurance companies in Nigeria.
He said, ” The oil and gas industry in Nigeria is a multi-billion dollars industry. With ongoing reforms, the prospects for the growth of the industry have heightened considerably. This offers corresponding growth in opportunities for insurable risks.
“The Petroleum industry Act has unlocked tremendous investment potentials in all aspects of the oil and gas sector –upstream, downstream and service sectors. The act has created much better regulatory and institutional environment for investment growth across the broad spectrum of the sector.
“The federal government and the National Assembly have played their roles in laying the foundation for the desired synergy; it remains for the industry players, working with the regulators in both sectors, to take advantage of the prospects.
Yusuf therefore suggested that Nigeria needs a strong framework for collaboration and partnership between the insurance community, oil sector investors, NAICOM, and NCMDB to harness the enormous potential.
Yusuf therefore urged insurance industry players to boost the demand side of insurance, such as ensuring compliance with current provisions, promoting insurance premium subsidy, deepening financial literacy, and providing tax incentives.
He said, “On the supply side, industry practitioners need to strengthen their domestic capacity in various areas such as capital adequacy, claims management, and the use of technology, among others. By implementing these recommendations, the insurance industry in Nigeria can be strengthened and better positioned to meet the needs of the economy and the people.”
Ehiemen Joseph, Chairman, Lagos Chapter of Petroleum Product Retail, Outlets Owners Association of Nigeria(PETROAN) said most oil and gas companies in Nigeria operating within downstream, midstream and upstream have found it difficult to obtain cost-efficient insurance coverage from indigenous insurance companies in Nigeria, adding the some of these petroleum industries have seen their insurance rates rise by as much as 50% annually.
This according to him has hindered these oil and gas companies from allocating capital to strategic growth initiatives.
He said, “Oil and gas companies in Nigeria face significant risks that require insurance coverage to protect their operations, investments, and assets across all the petroleum industry value chains, including haulage and logistics.
“The oil and gas industry are known for its operational and liability risks, which can interrupt critical supply chains, damage the environment, and put financial assets in jeopardy.
“This is why most upstream and midstream companies operating in Nigeria relies on multinational and foreign insurance company for a comprehensive risk management program to mitigate the most common exposures.
“Insurance companies and brokers in Nigeria should stop focusing on less significant packages focused on small assets and individuals instead of an industry wide targeted package.” Lagos PETROAN Chairman said.
He noted that for many years in Nigeria the energy sector and industry players have committed little to developing and implementing risk management programs for the assets and operations.
“Insurance companies needs to move closer with the core practitioners and associations within the oil and gas industry including Major Oil Marketers Association of Nigeria (MOMAN), PETROAN, Independent Petroleum Marketers Association of Nigerian, DAPPMAN, Independent Petroleum Producers Group, (IPPG) and other major players in the sector to package insurance solutions based on individual needs of these operators.
Ehimen therefore suggested several insurance coverages for oil and gas industry including general liability insurance, asset and facility insurance, and packages specifically tailored to the equipment used for their business, potential environmental risks, and safety risks exclusive to their petroleum industry.
He emphasised that the insurance companies must conduct a proper study of the entire oil and gas industry in Nigeria, classify the essentials, and talk with the core operators to fine-tune the right policy direction for the insurance industry.
He added that insurance companies can also organize workshops and retreats with some of the oil companies and regulatory authorities to fine-tune the right policy direction for the insurance industry. This according to him will help them maximize insurance recovery for energy companies and provide coverage for emerging industries who are leveraging on the new PIA to establish businesses in the Nigerian oil and gas industry.
Olugbenga Alex, Petroan Technical Coordinator, stated that the growth of the gas-powered economy in Nigeria presents significant economic opportunities for insurance companies. Investment in national infrastructure for natural gas and LNG development also presents opportunities for insurance companies.
These emerging companies may require insurance packages for their setup and facilities to mitigate risks and ensure smooth operations.
He emphasised that insurance companies need to write policies for LNG companies that are opening a new front for domestic utilisation CNG, LNG, LPG and natural gas for exports.