‘Insurance – NNPC Should Be Good Example to Oil Majors’ [interview]

Paschal Egerue, Managing Director, Afribank Insurance Brokers Limited, recently presented a book on oil and gas in Nigeria, bringing to the fore challenges facing the market, the opportunities and the ranging controversies. He spoke during a chat with our Senior Correspondent, Sola Alabadan. Excerpts:

Why has oil and gas business become an issue for the insurance industry?

First and foremost, oil is our natural heritage and Nigeria ranking sixth among OPEC member countries places us as a major oil nation in the world. Now, going by the way we have managed this resource in this country; people are beginning to argue that may be this natural resource has become a curse to us, but it wouldn't be.

So, the insurance industry must as part of the country position itself to tap into the possibilities of the oil and gas business in Nigeria. Oil is a highly perishable depleting resource, so, we don't have to wait until it is finished before we wake up from our slumber.

What we need do is to be a bit active in causing the redirection of the flow of international capital (money), because what you find is that because insurance is an international business, there is more outflow than inflow.

They take our money and at the same time say we don't have the capacity to access their own risk. So, there is serious disequilibrium in the system and as long as it continues that way, the market will never develop. So, something drastic has do be done so that the industry can pick its pieces and continue to move forward.

It is essential that we do well so that practitioners can have peace of mind to articulate issues in various directions. Here, you find out that people are busy chasing peanuts and at the end of the day companies are not making profit.

A recent figure from the Nigerian Insurers Association (NIA) shows that the whole of the underwriting community did not generate up to N200 billion in premium while our capitalisation is more than that, which means as a matter of business enterprise we are doing badly. So, something has to be done to open the doors and the oil and gas sector is one way.

And thank God that the government is responsive now to the issues there; at least, the local content Act has been signed into law, so there is no impediment any longer. It is now left for us to take the bull by the horn, take the risk and make ourselves relevant.

You recently launched a new book tiled "Oil and gas insurance: the money, the market and the controversy," what impacts will this have on the market?

First and foremost, it is going to simplify a lot of issues. Like we had today, it is shrouded area but with the book a lot of issues will be simplified and give many people, particularly my contemporaries the courage to look at the complexities in the oil and gas business and situate it into our underwriting practice. So, I believe the book clearly spells out the different areas of opportunity and people are going to go for these opportunities. I am happy that the entire insurance community was adequately represented at the book launch - the brokers, the underwriters, loss adjusters, reinsurers, NAICOM and the government, so the mileage is going to be a lot of advantage to the insurance industry.

There has been a lot of controversy surrounding the oil insurance market with some parties feeling cheated in one area or another, do we expect a radical departure with the unveiling of this book?

There will be a lot of departure. Like we said in the book, the market has a lot of structural disability, so, it requires that all of us come together to address the basic problems. When that is done, every other thing will fall in line. We can not say we are into oil and gas when we have not sat together to look at the underwriting issues that are involved, when we have not looked at training or capacity enhancement.

Once we have done all these, the next thing is for the business to flow. For example, if the underwriters are talking of capacity, the brokers are not talking of inadequate capital, because the brokers' capital is their brain and their contacts. So, why won't the brokers be part of the business, so, that is why I say it is all blackmail, that is why I say we must all sit together in unity because a lot of people are benefiting from the crises that is why we are not busy solving the problem.

Only one broker in the country is handling the consolidated insurance account of NNPC and this is generating some controversies in the market, how healthy is this development?

I believe what you are asking me is whether what is happening in NNPC is right or wrong, I don't think it is right. So, many things are shrouded in secrecy and before now we never new that they had a captive. For me, what I have always advocated is that if we must have a captive, it must be domiciled in Nigeria because if you put it offshore we are not benefiting anything from there.

Get a park-seven like we are having the export processing zone, let the NNPC and the oil majors have their captives domiciled here and then get the locals to work in this captives and we will begin to understand what is happening. As for NNPC, the purpose of captive is not necessarily to achieve reduction in their premium or thereabout, the purpose should be to share and distribute these risks so that they can benefit from the subsidies of other soft market jurisdiction. That is what I believe. But we are being told that the captives are there to achieve premium savings that is not right at all.