Nigeria’S insurance industry is set to generate over 30,000 jobs within the next five years,

Mr Sunday Thomas, Director-General of the Nigerian Insurers Association (NIA), has said.

This is in addition to the 250,000 jobs expected to be generated through Market Development Restructuring Initiative (MDRI).

Mr Thomas believed that the Local Content law that was enacted in 2011 has the potential to generate over 30,000 jobs in the next five years.

The National Insurance Commission (NAICOM) released guidelines for oil and gas insurance, in pursuant of the provisions of the Insurance Act 2003 and the National Insurance Commission Act 1997.

NAICOM in collaboration with the Nigerian Content Development and Monitoring Board, NCDMB, fashioned out the guidelines to ensure compliance with relevant provisions of the Nigeria Oil and Gas Industry Content Development Act 2010.

According to the guidelines, no person or organisation shall transact an insurance or reinsurance business with a foreign insurer or re-insurer in Nigeria in respect of any life, asset, interest or other properties classified as domestic insurance unless with a company registered under the Insurance Act 2003.

It further stated that all insurance arrangements, agreements, contracts or memoranda of understanding relating to any operation or transaction in the Nigerian oil and gas industry shall be in conformity with the Insurance Act 2003 and other relevant provisions. Also, no insurance risk in the industry shall be placed overseas without the written approval of the Commission, which shall ensure that Nigerian local capacity has been fully exhausted.

Mr Thomas explained that the law would transform the industry from a major importer of goods and services to one that sources a substantial proportion of its inputs locally to support operations and thereby empower Nigerians.

He, however, noted that a lot of manpower training would be required to actualise this just as he said that the policy would afford the local market the opportunity to increase capacity.

To buttress this point, Mrs Funmi Babington-Ashaye of Risk Analyst Insurance Broker Insurance noted that the industry needs to build capacity if it is desirous to venture into the high risk business.

“The determination of the quantum of risks, probability of occurence and the provision of cover are within the purview of an insurance expert. To say the least, the risks in the oil and gas industry are enormous and involve huge financial outlays and therefore, require sound technical capacity to accurately assess them.

“Indeed, oil giants strongly believe that insurance underwriters are both under-capitalised and have inadequate technical expertise to handle insurance risks in the sector. Against the foregoing, underwriters need to build capacity if they are desirous of venturing into this high-risk sector.

“Capacity building in the oil and gas sector can be viewed from two perspectives: financial capacity to execute projects and the technical expertise to appreciate the thrust and severity of the business to be undertaken as well as the ability to execute same.

“Technical capacity in the insurance business in general has been a serious problem and, indeed, one of the driving forces behind the last consolidation exercise. The view was rife that consolidation will improve the synergies of underwriters as they would have, not only a large pool of personnel to draw from, but also, they can invest some of their funds in training.

“What has become challenging to insurance practitioners today is, among others, the dearth of requisite technical capability and expertise to effectively manage the special risks associated with certain classes of insurance business as well as handle emerging crises. Yet, due to the absence of a solid capital base, managers of insurance companies erroneously perceive investment in the needed human capital both as wastes and as avoidable costs.

“No wonder, in carrying out re-engineering programmes, the first casualties are usually staff layoffs and drastic reduction in the budget of training! It is therefore not a surprise that the affected companies were unable to easily deliver on their contractual obligations. To achieve the desired level of human capital development will take much longer time and resource”, she explained.

Meanwhile, the Commissioner for Insurance, Mr Fola Daniel has noted that in spite of the benefits derivable from the Local Content, the policy would expose insurance sector to series of challenges such as, inadequate capacity to underwrite big risks, lack of expertise in special risks, under-capitalisation and non-definition of local capacity in the Local Content Act, among others.

Ever before now, insurers have opined that the sector may not need to wait for another government induced and regulated recapitalisation programme, but self and market induced recapitalisation, but no thanks to the economic crisis that hit the nation’s economy at the wake of the last recapitalisation, which might have hampered another round of consolidation programme.

Insurers have canvassed for risk-based capital to address the problem of under-capitalisation.

According to Mr.OlusolaLadipo-Ajayi, Chairman, Nigeria Insurers Association, the policy would promote healthy competition, although noted that foreign firms could still dictate oil and gas insurance rates.

Mr Ladipo-Ajayi explained that rates applied in oil and gas businesses are determined by insurers in the London market which control a large chunk of the business. It is a standard insurance practice for those who take the larger proportion of a risk to dictate the terms of any business. Unfortunately, local insurers cover a small proportion of risk in the oil and gas sector.

“Our members in the Nigerian market are bound to follow the lead of those who bear the greater proportion of risk. The pricing of insurance cover is greatly determined by several factors which relate to the level of risk undertaken by the provider of the cover. Among the factors to be considered in pricing are the probability of a loss, the total amount of liability that may arise in the event of a loss, the level of safety mechanism in place and reaction of the global insurance market to a particular risk in a given period and claims clauses,” Ladipo-Ajayi remarked.