Over 95 per cent of oil and gas businesses in the country are insured overseas due to the limited capacity of the local insurance industry to underwrite all policies in the sector.
This has resulted in huge capital flight with the attendant consequences on the economy, the National Insurance Commissioner (NIC), Mrs Lydia Lariba Bawa, has observed.
She explained that local insurance companies lacked good governance, risk management practices, technical and financial capacity to retain the oil and gas insurance businesses in the country.
Mrs Bawa said this at the 2nd National Insurance Forum, which was organised by Star Assurance.
She pointed out that, insurance companies needed to understand the risks involved in the oil and gas business to be able to put in place the necessary measures and systems that would enable them to benefit fully from it.
She said the sector must understand the business of oil and gas companies, which include how oil wells are constructed, the processes used in drilling the oil, the nature of the equipment and how they are operated, in order to appreciate the risks and liabilities to insure, and how to underwrite them.
The commissioner expressed the hope that the NIC’s new risk solvency framework, which required insurance and reinsurance companies to increase their capital requirement and develop sound governance structures and risk management systems, would help address the capacity challenges facing the sector.
Mrs Bawa said the commission had also collaborated with the Petroleum Commission to initiate measures to ensure that the insurance industry derived optimum benefits from the oil and gas sector.
The Petroleum Minister, Mr Emmanuel Armah-Kofi Buah, also pointed out that, the local content law provided protocols that would help grow the insurance market.
He said it provided a mechanism for the oil and gas services companies to retain a substantial portion of their insurance businesses in the country, which would reduce the level of capital flights.
“Just within a short period of its passage, which is between January to June 2015, Ghanaian companies have had contracts worth over US$700 million, and there are still opportunities for more,” he said.
He stated that investments in Ghana’s upstream petroleum sector was projected to increase to US$5 billion in the next five years, and therefore, urged the insurance industry to position itself to retain a huge portion of these investments in the area of insurance .
He urged the insurance industry to review its practices to meet the high standards that the petroleum industry demanded, and further appealed to the NIC to deepen its supervisory role to monitor compliance by insurance companies in the country.