Aircraft insurance premium: Issues, fears, prospect
While aircraft insurance premium has marginally reduced as a result of safety record, other factors have made it to be on the high side, which has made airline operations cumbersome. WOLE SHADARE writes
Good safety record
Nigeria and global aviation industry has continued to enjoy good record when it comes to accident; an indication that the Nigerian Civil Aviation Authority (NCAA) has lived up to expectation despite many challenges confronting the regulatory body and the entire aviation industry.
Aviation safety in Nigeria and Africa continued to improve over the past five years. Reports from Accident Investigation Bureau show that accidents have drastically reduced primarily because of safety decision implementation on the part of the airlines, regulators and other service providers.
The impeccable safety record may have lowered premium on aircraft insurance. Aside reduction in accident, there are other factors such as insecurity and trust, which make aircraft insurance premium higher.
The situation was helped by the attainment and retention of the United States Federal Aviation Administration aviation category one status.
The irony
An airline operator who spoke to Woleshadarenews on condition of anonymity, confirmed that premium on aircraft based on air safety in Nigeria has reduced but admitted that the violation of Cape Town Convention by some airlines and huge insecurity in some parts of the country has raised it on the other hand.
He said before the issue of insecurity came up, many Nigerian operators enjoyed good bargain from insurance firms, adding that it could have been better if Nigerian insurance firm have the capacity and capability to ensure airlines comprehensibly.
He posited that the West used high insurance premiums to extort funds from the continent’s carriers, stressing that aviation risk had reduced among the continent’s carriers.
He cited lack of air accident among commercial airlines in the past two years and the high rating received by African carriers from the International Air Transport Association (IATA) as an indication that safety had improved in the sub-sector.
He said: “They call it country risk, but I don’t think it’s a country risk. I just think it’s a way of getting money from Africa by the West. I don’t actually know what they meant by country risk. I think African countries will have to come together to fight this. It’s not only in insurance, even when I am leasing aircraft, they still claim country risk, later, and they say stability and mention security.
Humongous costs
A report available to our correspondent stated that eight indigenous airlines in Nigeria, expend about N11 billion on aircraft and passengers’ insurance premiums annually, representing 8 per cent of total value of each aircraft in their fleet.
Different ball game
But their counterparts in Europe and America, expend a mere 1 percent of aircraft cost as insurance premiums for airplanes and passengers. This is as a result of huge volume of aircraft and other equipment for insurance, coupled with its huge market compared to Nigeria.
The amount of money paid by the Nigerian airlines is different from what business aviation; charter operators and private jet owners pay as insurance premiums on their jets annually.
Eighty percent of insurance premiums are carried out abroad with international insurance companies such as Lloyds of London while the other 20 percent is domiciled in Nigeria with local insurance firms who act as brokerage firms.
Some of the major foreign insurance firms Nigerian airlines insure their aircraft are Allianz Aviation Insurance, Aerospace Insurance and Lloyds of London.
Fleet depletion
Also, investigation by our correspondent revealed that active scheduled aircraft among the indigenous carriers have dropped to just 40 from the initial 75 aircraft about two years ago.
An average age of aircraft in the country’s sky is between 16 and 24 years old while a used 1999 Boeing 737-300 aircraft, which 90 percent of the nation’s airlines use for flight operations is valued at $4.5 million in the international market (about N1, 642,500,000 at the exchange rate of N365 to a dollar).
An average age of aircraft in Nigeria’s sky is between 15 and 23 years old while a used 1999 Boeing 737-500 aircraft, which 90 percent of the nation’s airlines use for flight operations is valued at $4.5 million in the international market (about N1, 642,500,000 at the exchange rate of N365 to a dollar).
Aviation Insurance experts have said airline operators in Nigeria should stop benchmarking their premium rates with those of Nigerian neighbours such as South Africa, London and other western countries, arguing that safety culture in Nigeria is very poor when compared with those of other countries.
The aviation insurance experts spoke against complaints by Nigerian airline operators, said those aviation insurance operators in Nigeria charge high insurance premium whereas their counterparts in other counties charge lower rates.
Expert’s view
Chairman Nigeria Insurers Association (NIA), the umbrella body of insurance underwriters in Nigeria, Eddie Efekoha, recently said there is no basis of comparison between Nigerian aviation insurance providers and their foreign counterparts because the level of risk exposures of both differs. According to him, countries’ risks differ. “All these aviation operators over there, do they pay premium on monthly or daily basis and when you get to the airport, look at our airports, with all the touts and what have you, so everything is wrong with it, so the rates cannot but be high. 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.
Last line
It is ironical that while premium on aircraft is stable for years as a result of impeccable aviation safety, other things such as insecurity and lack of trust are the new consideration for high insurance premium for aircraft for Nigerian operators.
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