As stakeholders in the economy projects to see Nigeria coming me out of economic stagnation and bureaucratic inertia, S&P Global Ratings has also revised its outlook on Nigeria to stable from negative, citing the government’s recent reforms which the credit ratings agency believes could benefit the country’s growth and fiscal outcomes if delivered.
It is also in the spirit of ongoing reforms that the Nigeria Content Development Monitoring Board, NCDMB, has engaged with the country’s insurance sector to help driving reforms in the industry that had suffered despondency and economic depression.
The NCDMB, has pushed to enhance insurance penetration in the oil and gas sector that offers limitless opportunities to the insurance industry.
Chief executive officer, CEO of the Center For The Promotion Of Private Enterprise, CPPE, Dr. Muda Yusuf predicts that the value of Nigeria’s oil and gas industry currently at N12 trillion based on Gross Domestic Product, GDP in 2022, is set to progress further with ongoing Reforms.
Yusuf said the oil and gas industry in Nigeria is a multi-billion dollars industry and the prospects for the growth of the industry have heightened considerably.
He made this disclosure at the 2023 Oriental News Nigeria summit in Lagos which brought together key operators from the two industries.
The CPPE boss said the growth opportunities is further informed by new investment prospects valued at over $50billion showcased by international and indigenous companies at the last Nigerian Oil and Gas Opportunity Fair (NOGOF) in Yenagoa, Bayelsa State.
These prospects are projected to be developed within five years and are phenomenal opportunities for the insurance industry.
Additionally, the Petroleum industry Act, PIA, he continued has unlocked tremendous investment potentials in all aspects of the oil and gas sector – upstream, downstream and service sectors and has created much better regulatory and institutional environment for investment growth across the broad spectrum of the sector.
Unfortunately, he said the insurance which is a N647 billion industry going by its contribution to the country’s GDP in 2022 is a mere 0.32 per cent of our GDP.
In a N202 trillion economy, this is not a significant contribution, he opined.
“This underscores the fact that the sector has enormous prospects for growth amid the huge potentials that exist in Nigeria.
“The 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,” Yusuf noted.
He said the theme of this summit is quite apt and the good news is that the Nigeria Oil and Gas Industry Content Development Act already provides a robust legal and regulatory framework for synergy between Insurance Industry and the Oil and Gas sector in Nigeria.
Speaking further he said, “But we need a solid framework for collaboration and partnership between the insurance community, the oil sector investors, the NAICOM and the Nigerian Content Monitoring and Development Board, NCMDB to be put in place to harness the enormous potential.
“Let me advise insurance industry players to strengthen their public policy advocacy to boost the demand side of insurance by ensuring compliance with current provisions with respect to mandatory insurance as current level of compliance is extremely weak.”
He also advised the industry to promote and deepen insurance premium subsidy in critical areas of the economy such as agriculture, health and climate change projects among others.
At the summit, the NCDMB craved the understanding and support of the insurance sector to strengthen the Board’s desire towards the implementation of the Nigerian Oil and Gas Industry Content Act, NOGICD, in the sector.
The executive secretary of the Board, Simbi Wabote, while harnessing the theme of the conference; “Building Local Content Synergy between the Oil and Gas and the Insurance Sector in Nigeria,” said over the years, the Board has taken deliberate steps to forge collaboration with various critical stakeholders to support the attainment of its strategic goals and mandate.
Wabote, who was represented by Mr. Daziba Patrick Obah. Director, Corporate Services of NCDMB, said that stakeholders’ engagement and collaboration is one of the key enablers to the Board’s ten-year strategic road map designed to achieve 70 per cent Nigerian content performance by the year 2027.
This, he said, is the reason for various engagement and collaboration between NCDMB and several MDAs, including the National Insurance Commission, NAICOM which crystalised in the joint issuance of the Insurance Guideline in 2022 to support the implementation of the insurance requirements contained in Sections 49 and 50 of the NOGICD Act 2010.
The main benefit of the guidelines according to Wabote, is the creation of a database of all insurance programs procured by the operators, project promoters, alliance partners, and Nigerian indigenous companies, to enable the Board monitor utilisation of in-country insurance capacity thereby enhancing in-country value retention.
“It is worthy to emphasise that collaboration between government agencies is crucial for effective public service delivery through alignments of areas of strength, better decision-making, sharing of resources, optimisation of opportunities and better understanding of issues and challenges with policy implementation.
“This ultimately, create huge benefits for both country and citizens, as it enables collaborating agencies to understand and respond to the needs and expectations of Nigerians. In NCDMB, we recognise the importance of collaboration and synergy amongst government organisations and other stakeholders to the fulfilment of our statutory mandate.
The executive secretary described the theme of the conference as apt and timely as it underscores the imperative of fostering the much-needed collaboration and synergy amongst MDAs and critical stakeholders; in this case between two critical regulators in the Oil and Gas Industry and the Insurance Industry.
“There is no doubt that Nigeria has not extracted sufficient value across the Nigerian oil and gas industry value chain since the commencement of hydrocarbon mining in Nigeria. It is this very low indigenous participation in the hydrocarbon value-chain in Nigeria that necessitated the enactment of the NOGICD Act in 2010 with the sole aim of deepening local content in the nations’ economy.
“Similarly, the performance of the insurance sector, particularly in relation to oil and gas businesses, is also sub-optimal due to various reasons,” Wabote observed.
Speaking further he said that building synergy between these two critical sectors of our economy holds huge potentials for growth and development of the Nigerian economy, adding, “The summit, therefore, presents a great opportunity for key stakeholders to brainstorm on the benefits and challenges impeding optimal performance in these two critical sectors. Furthermore, this summit offers us a strong veritable platform for the Insurance Industry, the Oil and Gas Industries, and other stakeholders to articulate processes, procedures, and practices to forge sustainable collaboration in optimising opportunities and harnessing benefits for themselves as Nigerians.”
Dwelling more on the legislation, he said that, “In addition to various provisions of the NOGIC Act and the Insurance Act, Sections 49 and 50 of the NOGICD Act specifically provide concrete basis for NCDMB and NAICOM to work together to extract maximal value from both the Insurance and the Oil and Gas Industry for the Nigerian economy.
The Section 49(1) states: “All operators, project promoters, alliance partners and Nigerian indigenous companies engaged in any form of business, operations or contract in the Nigerian oil and gas industry, shall insure all insurable risks related to its oil and gas business, operations or contracts with an insurance company, through an insurance broker registered in Nigeria under the provisions of the Insurance Act as amended”
Also, Section 49(2) states:Each operator in subsection (1) of this section shall submit to the Board, a list of all insurance companies and insurance brokers through which insurance covers were obtained in the past six months, the class of insurance cover obtained, and the expenditures made by the operator while Section 50 states, 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.”
Wabote further noted that Section 49 makes it mandatory for operators, project promoters and other entities in the oil and gas industry to obtain insurance coverage for all insurable risks with insurance companies and brokers that are registered in Nigeria in line with the Insurance Act (as amended).
“It is important to note that Section 50 forbids entities in the oil and gas industry from offshore placement of any insurable risks except with the written approval of NAICOM. The essence of these two provisions of the NOGIC Act is to ensure full utilization of available in-country capacity in the insurance sector by oil and gas industry players. The goal ultimately is to promote more capital retention in country and to boost the capacity of Nigerian insurance companies and brokers to support the Nigerian oil and gas industry.
“To give life to these sections of the NOGIC Act, NCDMB and NAICOM set up a Technical Committee which developed the structures and strategies to promote and ease interface between both regulatory institutions. One of the tools to ease the interface between the two bodies involved the development of the NOGIC JQS Statutory Reporting Module which makes submission of insurance performance report by oil and gas companies to NCDMB automatically accessible to NAICOM for prompt review and feedback to NCDMB. The benefit of this virtual interface is to reduce the turnaround time and to promote the ease of doing business. NCDMB and NAICOM are still fine-tuning the Application Programming Interface to enhance its functionality and efficiency.” he said.
Speaking on seeming, challenges, the ES, said, “Despite the commitment of both agencies to optimize the benefit of the NOGICD Act and the Insurance Act, there are still some obstacles in the way of full implementation. One of the challenges of utilizing Nigerian loss adjusters or brokerage firms is the low capital base of the insurance industry. Closely related to it is the capacity of local insurance firms to underwrite the huge loss associated with a typical upstream petroleum project.”
He said, however that in response, NAICOM has made remarkable efforts to mitigate some of these limitations, but a lot still needs to be done.
He added that inthe spirit of collaboration, NCDMB is poised to work with NAICOM as a credible partner every inch of the way to get around some of these obstacles particularly within the boundaries of our statutory mandate.
On the way forward he said the Board will not only look at the challenges of building sustainable synergies but will also come up with feasible proposals to encourage collaboration to surmount impediments.
“To address the issue of low capital base of the industry, for example, we call on all stakeholders to support NAICOM to push for an increase in the minimum capital base of insurance companies.
“Secondly, NAICOM and other stakeholders need to also work assiduously to forge and promote mergers of insurance companies to enhance their efficiencies and improve their market share as part of their collective benefits.
I am aware that some steps have been taken in this direction, but these efforts need to crystallize into reality.” he added.
Speaking at the summit, the Commissioner for Insurance, National Insurance Commission (NAICOM), Sunday Thomas said the Commission has intensified its ongoing drive to facilitate platforms that address the demand-supply gap in the oil and gas Industry.
Thomas, said that the synergy between the two industries would encourage specialized insurance products that meet the needs of the oil and gas industry.
He said the Commission was poised to address all potential regulatory impediments, support the development of human capacity and ensure technical capacities of insurance suppliers in the industry.
Others, he said include adequate risk pricing, comprehensive coverages and risk management.
“As a regulator, we are committed to creating an enabling environment that will consistently enhance increased capacity of the insurance institutions, both financially and technically.
“Beyond our promises and without pre-empting the paper presenters and discussants, I will express the need for reciprocal expectations from the operators in the oil and gas sector.
“One of which is timely compliance with the requirements of the guidelines, jointly issued by the commission and the Nigerian Content Development and Monitoring Board (NCDMB).
According to him, the drive toward enhancing local content speaks to the long-term plan of the government, burn out of good intention and strategy to grow its economy, develop the Nigerian industries and human capital.
Thomas explained that prior to the Nigeria Oil and Gas Industry Content Development Act of 2010 (NOGICD ACT), the Insurance Act 2003 made provisions for the domestication and domiciliation of insurance services in Nigeria.
He said that this is stated, in Section 65(7), which made it compulsory for any property located in Nigeria, whether moveable or immovable to be insured with a Nigerian registered insurer.
The commissioner said Section 67 requires that insurance of all imports into Nigeria must be insured by registered insurers.
Thomas stated that the historical relationship between both the oil and gas, and insurance industries could be traced to the birth of the latter, following the issuance of the NOGICD ACT.
He expressed that the insurance industry, in collaboration with the NCDMB, brainstormed and came up with the issuance of the Guidelines for oil and gas insurance business issued in 2010.
According to him, the guideline, among others, stipulates the roles and responsibilities of insurance institutions in ensuring compliance with local content law.
He, however, said that was with the primary consideration of ensuring actual exhaustion of available In-Country Insurance Capacity.
Thomas said the overall aim of the guideline is the development of indigenous content through increased local participation.
“The synergy between both industries was renewed when both agencies identified the need for a veritable platform for inter-agency collaboration.
“This is in order to give effect to the requirements of Sections 49 and 50 of the NOGICD Act 2010 by providing guidance to operators in the oil and gas, necessary for satisfying the provisions of the law in relation to insurance transactions.
“The journey for the renewed collaboration transited to the signing and unveiling of the guidelines on submission of insurance program by operators, project promoters, Alliance partners, and indigenous companies in the Nigerian oil and gas industry,” he said.
According to him, NAICOM has shown a positive attitude to market development by the release of the Soundbox Guidelines which is an instrument to test ingenuities in the market.
Thomas said, the commission sought to facilitate and promote innovative insurance solutions that would address the gaps in current insurance offerings.
The NAICOM boss stated that following the mandate to develop indigenous capacities to participate in the oil and gas industry, both regulators would collaboration to facilitate and promote adequate assessment of the needs of the oil and gas industry.
He noted that both regulators must also be able to influence the behavior of Insurers, Reinsurers and Brokers in manners that address the needs for national growth and development.
Resisting Growth
The Insurance Industry in Nigeria, is unfortunately very proud to present itself as an incapacitated industry and perhaps promotes and spread ponderous argument.
Apart from poor penetration, and poor perception of insurance policies by the public several other factors have made insurance offerings unattractive in Nigeria.
Indigenous insurance firms’ inability to handle multi-billion naira policies involving large companies, especially oil and gas industry constitutes a drawback to the sector’s growth, just as the issue of local content is still a challenge in the industry.
Beyond this, some other factors have also contributed to challenges faced by the sector.
It is these stark realities that made the fresh injection of capital into the sector inevitable, so as to create stronger and bigger operators in the industry, who would also have the capacity to provide insurance cover no matter the size.
Since the recapitalisation of insurance industry was initiated by the National Insurance Commission (NAICOM), there have been pronounced resistance with some kicking the initiative.
The insurance companies were expected to achieve, at least, 50 per cent of the capital requirements even as September 2021 was set as the final deadline for full recapitalization.
Details of the recapitalisation exercise as contained in a NAICOM circular issued on May 20, 2019, indicated an increase in the paid-up share capital of life companies from N2b to N8b, general business moved from N3b to N10b; composite business moved from N5b to N18b, and reinsurance companies moved from N10b to N20b.
The NAICOM had also made it clear that the recapitalisation of the sector was necessary to make liquid funds available for insurance companies to have the capacity to pay for indemnities and claims as at when due, as against their current reliance on fixed assets and property.
The insurance penetration in relation to the GDP in the country (which is put at 0.4 per cent in a population of over 200 million people), underscores untapped opportunities open to investments in the sector, with the hope of emerging stronger while also contributing reasonably to the economy by consecutively increasing capacity.
While the minimum paid-up share capital requirement was supposed to take effect from the original commencement date (May 20, 2019) for new applications, the existing insurance and reinsurance companies were required to fully comply not later than 30th June 2020.
In one of the updates signed by Rasaq Salami said: “Further to the circular issued by NAICOM on May 20, 2019 increasing the paid up share capital of insurers and reinsurers in Nigeria and, the subsequent directives to companies to submit their recapitalisation plans by August 20, 2019 the commission notified all insurance stakeholders that it received plans of forty-seven (47) insurers and two (2) reinsurers.”
Salami explained that in keeping with the recapitalisation roadmap, the commission had concluded a review of the submissions, and communicated to individual companies on their positions as detailed as follows, “twenty six (26) companies have been granted “No Objection” to proceed with their plans; the plans of 17 companies were corrected, and have been advised to re-submit their new plans using paid-up capital, and not shareholders fund; four companies do not have the requisite 2018 financial statements and are thus, advised to review their plans of using IPO.”
Others were that one company had litigation issues and was advised to resolve them as soon as possible to enable its progress; one company’s submission was noted to have met the necessary requirements; the review of submissions from two companies was ongoing, while, three companies were yet to submit their recapitalisation plans.”
The statement stressed that NAICOM resolved to adhere to the recapitalisation roadmap towards achieving its desired objectives in the best interest of all stakeholders.
