With $1 billion balance sheet, stakeholders allay fears over aviation insurance
Insurance is an essential component of the aviation industry, but it is the least mentioned by operators and industry stakeholders.
The second CHINET Aviation Cargo Conference recently held in Lagos, however, changed the narrative by examining, among other things, “The Role of Insurance Regulation in the Growth of Aviation and Cargo Business in Nigeria”.
It was at the conference that players in the insurance sub-sector of the national economy allayed fears in the aviation sector about the ability of insurance companies to finance the aviation industry.
They said the total balance sheet of the insurance industry is over $1 billion, which is more than enough to cover the aviation industry in Nigeria.
“Thus, there is no fear of low insurance capacity,” observed stakeholders at the two-day conference where they also identified bottlenecks to air cargo growth in the Nigeria.
While stakeholders claim that the role of insurance in the aviation sector cannot be overemphasized, it is said to be the least talked about.
Daily Trust on Sunday reports that there have been doubts in the aviation industry about the ability of Nigeria’s insurance companies to insure the operation of airlines.
But the myth was dismissed by stakeholders including National Insurance Commission (NAICOM) Commissioner/CEO Mr Sunday Thomas, who was represented by Leonard Akah; The Managing Director of Cornerstone Insurance PLC, Mr. Ganiu Musa among others who argued that insurance companies in Nigeria have the capacity to finance aviation insurance.
Our correspondent reports that Nigerian airlines have always struggled to insure their responsibilities, especially the planes in the hangar, on the ground, in the air and the passengers on board the plane.
It is therefore a mandatory operational requirement for any airline. The insurance cover must not only be up to date, in accordance with the regulatory provision, but it must be renewed as and when due.
But airline operators have had to deal with high premiums, especially in terms of reinsurance with Nigerian insurance companies, which has prompted many to insure their planes abroad.
And on top of that, insuring overseas is also no tea party with the amount of foreign currency involved and the classification of Africa as a high risk country regardless of the fact that Nigeria has significantly improved its aviation safety and has not experienced any major aviation accidents. by a scheduled passenger airline over the past 10 years.
But the insurance commissioner said that while every airline operator is required to insure their businesses 100% as required by law, many are not finding it easy to pay their premiums when due.
“…So they break it up into chunks, some monthly and all that, but our law says no premium, no coverage. So if you don’t pay, you’re on your own and you can’t fly if you don’t have insurance. It is a problem, even to access currencies because coins, everything is foreign, even to access this currency is not easy. It is difficult for them. »
He listed other challenges for aviation insurance, including the sabotage of local content law requirements, insufficient technical expertise, staggered premium payments, limited local capacity and the nature of reinsurance coverage.
He called for a greater injection of capital to enable greater local retention, enhanced cooperation between NAICOM, NCAA and NCMB and more engagement with airline operators.
The representative of the NAICOM commissioner, who is the director of policy and regulation at the commission, in a conversation with our correspondent, later said that the fear about the capacity of Nigerian insurance companies was misplaced. .
He said: “Honestly, as a regulator, I don’t want to sound protective, no. I am Nigerian so I should say it as I understand it. The percentage of aviation, even if you want to compare it to oil and gas, is so infinitesimal, so small, it’s not so much that it comes and beware, we have laws, NAICOM is the regulator of insurance business but we don’t make laws.
“In the wisdom of our legislators, we all know about local content. If we were to allow any aircraft to fly into Nigeria, you would find that none of our national airlines can even fly, to begin with, and secondly, aviation insurance is a special risk. Even the conditions are not fixed here in Nigeria. It comes from the UK market. A lot of factors are really in place. If there is an accident here today, it will globally affect next year‘s bounty.
He explained that the law governing insurance operations in the aviation sector provides for the withdrawal of a minimum of five percent of shareholders’ funds to protect operators from third-party liability.
“It is for the protection of the public insurer. If you don’t, people might bite off more than they can chew. They could take more. What we’re saying is you can’t take more than that from your equity outside of your capacity. To break it down in layman’s language, someone might say, “we haven’t had a crash in five years, 10 years, I can even take 100%, nothing can happen.” But we said, ‘No, you have a limit that you can take. See if that happens, of course lives are still involved.
Musa also dismissed the insinuation of lack of capacity of local insurance operators, saying the amount of risk covered by Nigerian oil and gas insurance companies is a hundred times greater than what was required in the aviation.
“If you look at the total operating cost of airlines, insurance coverage is less than 5%,” he said.
Musa noted that the total balance sheet of insurance companies in Nigeria was around $1 billion, pointing out that with this, the totality of insurance companies in Nigeria could not provide more than $50 million in coverage. insurance for the aviation sector.
He noted that some of the lessor requirements when airlines lease aircraft may also affect the insurance premiums charged by insurance companies in Nigeria.
He called for greater collaboration between airlines and the insurance industry to protect the internal market.
The conference, however, urged NAICOM to work with the CBN to purchase dollars directly for the payment of international insurance premiums while calling for regular consultative meetings with aviation stakeholders to iron out identified differences.
Participants at the end of the program called for the establishment of a technical committee comprising representatives of air cargo chain stakeholders to develop “An Air Cargo Directive” to lay out a cargo handling guide applicable and transparent to facilitate air cargo facilitation. and increase the volume and traffic of goods.
In addition, participants urged insurance companies to devote more funds to finance air cargo, improve Aviacargo business processes in Nigeria, they called on the government to stop multiple export levies in Nigeria. airport, saying, “This makes our exports, especially agricultural produce more expensive compared to other African countries.
The conference also requested the government to simplify the process/procedure of export operations at the airport.
The statement adds: “Moving from one table to another should be discouraged. A one-stop shop is ideal. Preferably a document to be completed by exporters. The presence of multiple government agencies at the airport should also be discouraged.
“Packaging standard and product traceability were also discussed and exporters are expected to work in accordance with global standards.”
In addition, local airline operators have been urged to create more local routes to deliver cargo, especially perishable agricultural products to areas of demand, to reduce food shortages and inflation.
It will also increase the wealth of farmers and those in the supply chain, the conference said.