The moves by the Ship Owners Association of Nigeria, SOAN, to establish a specialist insurance outfit in Nigeria to cover all maritime related risks, has drawn the ire of the insurance industry.
SOAN has said it was moving to establish a maritime insurance outfit in the mode of the Protection & Indemnity, P&I, Club of London to curb the loss of billions of dollars annually in insurance premium paid to foreign insurance companies.
But insurance industry chieftains said it was a mission impossible, claiming that marine insurance is an international business where risks are spread locally and internationally.
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Also, insurance operators argue that the move is not going to fly because most of the vessels in Nigeria are old and uninsurable even as many of them are not registered.
SOAN accused local insurance firms of failure to pay claims in cases of accident, an action that have slowed down operations of some maritime businesses.
Chairman, Technical Committee of SOAN, Lucky Akhiwu, said SOAN has already begun plans to bring about a maritime insurance company.
Subsequently, SOAN intends to domicile all the premium lost to foreign insurance agencies through the establishment of a P&I club in Nigeria.
However, industry operators who spoke to Financial Vanguard argue that marine insurance is not a huge revenue earner for the industry, as such even if SOAN succeeds in setting up a specialist company; it will not have significant impact on industry Gross Premium Written, GPW.
Insurers’ marine performance
Analysis of financial performance of eight major insurers in the industry for the 2018 financial year show that GPW for marine insurance stood at N8.8 billion while gross claims paid was N4.5 billion.
Leadway Assurance led the pack with GPW of N1.7 billion although its claims settlement was not stated in its annual report. Nem Insurance followed with GPW of N1.5 billion while claims paid was N569.1 million. AIICO Insurance was next with GPW of N1.4 billion while gross claims stood at N512.5 million. Zenith General Insurance recorded GPW of N1.1 billion while gross claims stood at N675.9 million.
Axa Mansard posted GPW of N974.3 million while gross claims was N163.9 million. Mutual Benefits recorded GPW of N895.4 million while gross claims stood at N242.3 million. Custodian and Allied posted GPW of N793.7 million even as claims paid was not recorded in its annual report. Consolidated Hallmark posted GPW of N478.3 million while gross claims stood at N2.3 billion.
Speaking on the development, Deputy Managing Director/Chief Operating Officer, COO, African Reinsurance Corporation, Africa Re, Mr. Ken Aghoghovbia, said that setting up a specialist insurance company is not the solution as most of the vessels in Nigeria are old and not insurable.
Aghoghovbia said, “I do not think setting up an insurance company will be the solution. Some years ago, this type of initiative was raised by some ship owners but what they fail to understand is that most of our vessels are old and some of them are not registered.
“Our intention was to sit with them and say, ‘These are the problems and this is what we can do. But it looks like they came up with a solution and that solution is to come up with an insurance company.
“Presently, setting up an insurance company will require looking for N10 billion. If you want to say the company will retain like two percent of any risk, it will not stop foreign exchange going out.
“Also, setting up an insurance company will not be the solution because from the capital, the company will pay rent, employ staff and pay salary as well as all other operational expenses. They will also pay for reinsurance and if there is a claim and they get it wrong, the company will go under. If they have a capital of N10 billion which after they take care of a lot of things it might be less, and then they are operating with maybe two percent retention of risks, they could either co-insure or reinsure. If they co-insure then it will be with the local companies, if they reinsure, it will go to some of the companies and some will still go outside. The whole idea of insurance is spreading of risks.
“However, a specialist insurance company probably could impact on individual company’s premium income but not significantly because they don’t keep substantial part of the risks as marine risks are not small. It could limit what some other companies are writing but I don’t think it will be significant. Although I don’t know how much the ship owners want to bring into play. If I would guess, I think they would just try to meet the minimum capital in which case they will not be a major player in the industry.”
Also speaking, Managing Director of FBN Insurance, Mr. Val Ojumah said that the chance of survival of a specialist insurance company for marine risks is slim.
Ojumah said, “If they succeed with a specialist company which I doubt could happen, it will not affect premium income so much because many insurance companies are not making much from marine insurance. The effect will be on individual companies, however, from industry perspective, there won’t be any loss to the industry.
“Also, if they want to set up a specialist insurance company there is nothing wrong with that, however, if they are focusing on only risk from Nigeria, they won’t survive. So there are two things that make insurance thrive, one is the law of large number, and two is the spread. “Insurance survives on laws of large number. With focus on Nigeria alone, they will have limited number and no matter the amount of premium they charge, they won’t survive. Number two, they will not be able to retain a lot of liabilities because there is no spread, as such, the move will be dead on arrival. So when you have your risk all concentrated in the same region, you won’t survive.
“The UK P&I Club survives because they take risks from all over the world and they spread the risk all over the world. When people sit down and say they want to do specialist insurance company in Nigeria, and retain all the risks, they have no idea what they are talking about.
“The ship owners complain that their claims are not being settled, but the truth is that most vessels in Nigeria are old and actually not insurable. Most reinsurance companies turn down the risk, but out of desperation some insurance companies’ give them cover and they come back to complain when they themselves don’t meet the terms and conditions of the coverage.
“How many instances of default on claims settlement do they have? It is said that you go to equity with clean hands. Most of the complaint about insurance companies not paying claims is not correct. When you go and look at the paper work, you will find out that they have not met the terms and conditions of the coverage.”
On his part, Managing Director of Legacy Insurance Brokers, Mr. Babatunde Thomas said that the maritime operators will still need experts from the insurance sector to run any company they might come up with.
He said, “The local maritime operators are not giving us any narrative by complaining that they are not getting what they expected from local insurers. There must be statistics to follow that up. They must be able to tell us that this is what insurers have done here or there.
“If such complaints exist, have they lodged the necessary claims to the insurance companies and the companies did not pay the said claims? Also, did they report to the regulator?
“However, I don’t have any issues with the maritime operators setting up a specialist insurance company. If anybody wants to practice insurance in Nigeria, they should follow the laws. The laws allow them to register. Therefore if they want to be insuring their own risk, let them give it a trial. If they can mop up the resources required, they will still need experts from the insurance sector to run it. So it is the same sector that you say is not performing that you are still going to bring expert from. I think that they are just saying what they think they could do. It is just like vehicle companies coming out to say that they want to come together and set up an insurance company that will be insuring only vehicles. The fact still remains that they don’t have the experience.”