The Nigerian Content Development Act, which came into law in 2010, provides a huge opportunity for local operators and allied service providers in the oil and gas sector to enjoy premium rights on services provided in the sector before it is taken abroad.
And insurers are supposed to be major beneficiaries of this policy, believed by government to be the best possible way to develop local capacity for robust economic development. The policy, when fully implemented, is expected to increase income generation for local companies, create employment opportunities, and enable local companies contribute reasonably to the nation’s GDP.
Before the law came into being, local operators who provided services in the oil and gas sector lamented capital flight and loss of foreign exchange earnings as a result of dominance of foreign players in the market caused by low technical and financial capacity to manage emerging risks. This, for many years, frustrated growth and development of the insurance industry as operators were merely fronting for foreign players who took advantage of the low capacity in the market to enrich their companies offshore. As the campaign for change heated up some years back, there was push for a law that would give local players the opportunity to have first right of rejection. This brought about the Local Content Act, which was later expanded to become the Nigerian Content Development Act.
The signing into law of the Act increased the stakes of local insurers in the underwriting of oil and gas risks. In response to the law, insurance industry guideline for oil and gas risk for 2011 reads: ‘No person or organization shall transact an insurance or reinsurance business with foreign insurer or reinsurer in respect of any life, asset, interest or other properties in Nigeria classified as domestic insurance unless with a company registered under the insurance Act.’ It further states that ‘no insurance risk in the Nigeria oil and gas industry shall be placed overseas without the written approval of the National Insurance Commission (NAICOM), which shall ensure that Nigerian local capacity has been fully exhausted’. NAICOM also redefined capacity requirements and framework for accessing business in the oil and gas sector.
We commend the signing of the Act into law. We also commend NAICOM’s determination to ensure that the policy works, and its pledge to entrench international best practice, encourage voluntary rating of insurance operators, license new broking firms with expertise in oil and gas, give preferential licensing to reinsurance companies, and reinvigorate NAICOM’s complaint bureau.
However, while efforts are being made to encourage local players to grow their capacity, operators should demonstrate adequate commitment and courage to harness the great opportunities in the Nigerian Content Development Act. In this regard, local operators must shun corruption and issues bordering on fronting for overseas insurance companies, bearing uninsured risks or inappropriately reinsured risks, and premium loading or premium under-declaration. Round tripping must be avoided in the best interest of the market.
Furthermore, there should be strategic effort to build human capital for emerging opportunities in the business because that is the only way the industry can be independent and rely less on foreign capacity.
We also demand that the regulators in the sector, including NAICOM and the Nigerian Content Development Commission (NCDC), ensure full implementation of this law and enforce compliance with provisions of the law on international oil companies (IOC’s) and the Nigerian National Petroleum Corporation (NNPC). NAICOM/NCDC must prosecute oil companies that breach the law and ensure that they pay the penalties as provided in the law. For the objectives of the policy to be realized, there should no compromise. A decision has been taken to manage the risk locally and that is where we stand, except where the skills are not available locally.