Local Firms’ Low Capacity Sustains Foreign Insurers’ Grip on Nigerian Airlines

Chinedu Eze and Ebere Nwoji

Experts have identified low capacity and high premium as factors that have continued to compel Nigerian airline operators to seek insurance coverage abroad despite the federal government’s local content law and National Insurance Commission’s (NAICOM) directive on aviation insurance in Nigeria.
The situation thus, has positioned aviation insurance as a major channel for foreign exchange outflows.
Some insurance and airline operators attributed the development to the high level of risk in Nigeria, compared to some other countries.

Speaking in an interview with THISDAY on the matter, the CEO of Aero Contractors, Captain Ado Sanusi, said one of the reasons Nigerian airlines prefer to insure their aircraft with foreign companies is because of capacity.
He explained that the local insurance companies do not have the capacity and that is why it takes a bit longer time to pay claims when they come.

According to Sanusi, the local market is not ripe to wholly and fully insure aircraft, saying there is no reason for indigenous insurance operators to attempt carrying risks they cannot handle.
According to him, this explains why the local insurance companies re-insure risks with international companies so that the foreign companies that have the capacity could support them in carrying the risks.
“You cannot insure your aircraft locally when you know that the local market does not have the capacity to carry the risk.

“For example, if you buy your aircraft for $100 million and you have three aircraft acquired at that price, which is $300 million, and you want to insure them locally, can the market carry the risk?
“This is why airlines insure with international companies, not because we don’t want to insure with local insurers. If you insure outside, you are exposed to the Asian market, the European market and the US market and the risk is shared with re-insurers and when there is compensation, it would be easy to pay claims. This is a shared risk,” Sanusi said.

He, however, commended the NAICOM, saying the decision to allow airlines insure part of the risk in Nigeria and the other part with foreign insurers was commendable.
Presently, Nigerian airlines insure 30 per cent of the risk with local insurance company and 70 per cent with international insurance company.

But, Sanusi stressed the need for effective coordination by NAICOM, so that when compensation occurs, the local and international companies can work together in the payment of the compensation.
“NAICOM says that you can insure a certain amount of the risk locally and insure the rest outside. This is commendable but there should be coordination between the local and the international market and this coordination should be enshrined in the regulatory framework of the commission,” Sanusi said.

Commenting on this, aviation insurance expert and Managing Director Consolidated Hallmark Insurance, Eddie Efekoha, said Nigerian airline operators should stop benchmarking their premium rates with countries such as South Africa, the United Kingdom and other developed countries, arguing that safety culture in Nigera remains very poor compared with those of other countries.

Efekoha insisted that was no basis for comparison between Nigerian aviation insurance providers and their foreign counterparts because the level of risk exposures of both differs.
According to him, countries’ risks’ exposure differ.
“When we get our things right, the premium can reduce. Of course, size is an issue. You are generating a premium for instance that cannot buy one plane but like the likes of BA, their premium can buy three Planes. So size is an issue,” he explained.

Continuing, Efekoha said, “you find out that we have multiplicity of problems when it comes to aviation insurance in Nigeria and you must take all of these into account in your rating.”
On the issue of capacity, aviation insurance expert and former Managing Director, Cornerstone Insurance, Jacob Erahbor, said business operators especially those in aviation and oil and gas sectors giving capacity as reason for taking their risks abroad were “just deceiving themselves.”

He said, “This is so because insurance business by its nature is about risk sharing, therefore every operator that wants to do the business in a professional way must share the risks with other insurers.”
He said even among foreign insurers whom Nigerian aviation, oil and gas sector operators prefer to give their businesses, do so through risk sharing.
On his part, the Managing Director, Boof Africa Insurance Brokers, Olumide Fatagun, said there is a general poor attitude of Nigerian airline operators towards insurance premium payment.

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