Meeting insurance obligation is a critical challenge to Nigerian commercial airlines due to the cost of premium, which is defined by country risk and other factors, including operational environment, airport facilities, government policies and country’s safety record.
In Nigeria, insurance policy stipulates that airlines must insure through local insurance companies to meet the requirement of local content; but because aviation demand high financial capacity, risks are shared with international insurers.
This was recently explained by the National Insurance Commission (NAICOM) at Chinet Aviation Cargo conference last week in Lagos, as the Commission stated that the law guiding insurance operations in the aviation sector stipulates the withdrawal of a minimum of five percent of shareholders’ funds to protect operators from third parties’ liability.
NAICOM said that Nigerian insurance companies could handle aviation related insurance, including aircraft insurance.
Commissioner for Insurance, Mr. Sunday Thomas explained that while every airline operator is required to insure its businesses 100 percent as stipulated by the law, many of them are not finding it easy to pay their premiums as at when due; so they break payment of premium into monthly and quarterly, depending on the airline’s financial ability.
Thomas who was represented by the Director of Policy and Regulations,
Mr. Leonard Akah, said: “So they are breaking it into bits, some monthly and all that but our law says no premium, no cover. So if you don’t pay, you are on your own and you can’t fly if you don’t have insurance. This is an issue, even to access the foreign exchange because the parts, everything is foreign, even to access this currency is not easy.”
Thomas listed other challenges to aviation insurance to include sabotaging local content Act requirements, insufficient technical expertise, installmental premium payment, limited local capacity and nature of reinsurance cover.
He advocated for more capital injection to enable more local retention, enhanced cooperation among NAICOM, the NCAA and Nigerian Content Development and Monitoring Board (NCMB) and more engagements with airline operators.
According to the regulation, any carrier operating air transport services to, from or within Nigeria, or aerodrome operator, aviation fuel supplier, or any provider of ground handling services, meteorological services, air traffic control services, aircraft maintenance services, or provider of such other class of allied service as the Authority may from time to time determine in writing shall maintain adequate insurance covering its liability under this Act and also its liability towards compensation for damages that may be sustained by third parties for an amount to be specified in regulations made by the Authority” S.74 (1) Civil Aviation Act, 2006.
Over the years Nigerian airlines have yearned to insure directly with foreign insurance companies because it costs them less to do so, but NAICOM said no person shall transact an insurance or reinsurance business with a foreign insurer or reinsurer in respect of any life, assets, interest or other properties in Nigeria business classified as domestic insurance unless with a company registered under this Act.
The insurance experts who spoke at the conference while citing the
regulations insisted that there are a lot of benefits for airlines when they insure through Nigerian insurance companies in keeping with the local content policy, but airlines may yet be convinced about the benefits.
The Commission said, “A person who intends to insure any property located in Nigeria, whether movable or immovable, or any insurable interest or liability in relation thereto, shall place such an insurance with an insurer registered in accordance with this Act who may, subject to the provisions of this Act, reinsure such property or liability overseas where the Nigeria insurance industry lacks the capacity to retain the risk.”
It added that all aviation insurance business shall be conducted in accordance with insurance laws and other relevant regulations, which include the establishment of underwriting terms and conditions for any aviation and its associated risks in Nigeria, shall be the responsibility of an insurer duly licensed to transact insurance business in Nigeria. This is without prejudice to an insurer’s need to seek expert advice from its facultative reinsurers for appropriate risk rating/pricing.
The Commission also stated that an insurer shall ensure that all aviation insurance transactions are conducted in compliance with Contract Certainty principles and requirements.
“Aviation insurance liability policy for any Nigeria domiciled risk shall conform to the minimum passenger liability limit as required by the Nigerian Civil Aviation Authority (NCAA), which would include that every insurer and/or co-insurer shall, prior to accepting, signing and/or stamping any aviation insurance policy/schedule of co- insurers, carry out Risk Measurement and Exposure Assessment vis-a vis its available capacity.
“The risk measurement/exposure assessment shall be documented and ratified by an appropriate authority (CEO, DGM, AGM, Controller or Head of Department/Unit) not later than 24 hours from the time the risk was accepted, signed and/or stamped by the authorized persons,” he said.
On reinsurance/ exposure limits, the Commission explained that an insurer’s treaty and/or facultative reinsurance arrangements with a foreign reinsurer shall not be placed with a company having a Financial Strength Rating (FSR) lower than “A-” (S&P) or “A” (A.M. Best); that the aviation insurance treaty shall allow automatic acceptance by the Reinsurers. Thus, a facultative reinsurance arrangement, facility or line slip subject to declaration or to be agreed shall neither be categorised/recognised nor accepted as treaty; that the Net Retention/Deductible of an insurer under any treaty, on per risk basis, shall not constitute more than 5 per cent of its Shareholders' Fund and where an insurer decides to write an aviation insurance risk for its net account only without reinsurance treaty, the insurer shall not accept nor commit more than 5 per cent of Shareholders fund determined under prior year audited accounts approved by the Commission. This is Courtesy of This Day.