Why insurance firms apply caution underwriting aviation risks, says NAICOM boss

…Says underwriters’ ‘ve capacity to cover sector risks

The Commissioner for Insurance and the Chief Executive Officer of the National Insurance Commission (NAICOM), Olusegun Omosehin has said that the high capital-intensive nature of aviation has made insurance firms to be very careful with underwriting risks in the sector.

Speaking at the 4th Chinet Avia Cargo Conference 2024 in Lagos, he said the situation makes every aviation risk pass through NAICOM for proper scrutiny.

He however debunked insinuations in some quarters that Nigerian insurance firms cannot insure airlines’ assets, particularly aircraft.

United Nigeria Airlines chief operating officer, Osita Okonkwo disclosed that no local insurance companies can insure big aircraft in Nigeria.

According to him, even if an airline purchases an aircraft, it is an international requirement that it has to be insured, but no insurance company can do that in Nigeria, especially for bigger aircraft.

He said, “The other one on insurance is that there is no capacity internally to do big aircraft insurance in Nigeria. So many lessors are not operating in Nigeria because of insurance. It is killing business because even though you want to do indigenisation, you cannot do that with another person’s assets.”

“Even if you buy an aircraft today, it is a requirement that you have to insure it even if you pay with your money in Boeing, Embraer or whatever. The insurance must cover Boeing even though they have sold it to you, they must be party insured in that transaction. So you can’t escape the international requirements of the business and limiting it locally will not help lessors.”

Omosehin noted that the issue of capacity in terms of aviation insurance in Nigeria was quite easy and clear., adding that the capacity of underwriters in the market is determined and measured by what they have in addition to the –re-insurance capacity that is made available to them.

His words, “This is affirmed on an ongoing basis by the regulator. From time to time, we look at policies that are issued vis a vis with their solvency state; we review that in consonance with the relevant treaties they have entered into with re-insurance globally.”

“The reality of aviation insurance is a global business risk emanating from one country cris crossing borders. Many of them often end up in Lyolds of London and this is not peculiar to Nigeria. Other countries, even risks emanating from the United States will end up in Lyolds because they have a great appetite for aviation risks and that is why they are re-insurance.”

“ I don’t see why we consider this as an issue but I think that there is a major issue around the demand of financiers that oftentimes are financing aircraft for the majority of our operators because they are the owners of capital, they then want to dictate where the insurance should be done. In this instance, these risks which are the aircraft are going to be flown in Nigeria, carrying Nigerian passengers operating Nigerian routes.”, he added.

The NAICOM boss said it was equally essential to understand that the Nigerian law only permits Nigerian companies to be the ones to give the cover.

He however noted that risk cover is subject to available re-insurance backing, stressing that all across the world, the best re-insurance occurs across the world and is not limited to Nigeria.

Omosehin further stated, “Mind you, every January of every year, we review the re-insurance treaties of every underwriter in this market to ensure it meets with international standards and it is on that basis that we approve their treaties before they are allowed to operate.”

Wole Shadare