The recent National Insurance forum which attracted many stakeholders in the oil and gas sector, insurance regulator and practitioners couldn’t have come at a better time.
Indeed, the issue regarding only five per cent of the risks being insured locally may be worrisome as the chunk of the risks is sent outside the country in mainly reinsurance.
Ghana, having discovered oil in commercial quantities in 2007, led to the prediction of Dutch Disease for the nation by some business moguls. The joy that accompanied this discovery by many a Ghanaian following the potential of it propelling the much needed rapid economic growth seems either stagnant or declining. That notwithstanding, oil finds, generally, have their attendant risks which may require sound insurance underwriting. Given the huge financial requirements, particularly, for infrastructural developments such as the constructions of rigs, digging of wells and office complexes, the need for oil and gas insurance cannot be overestimated.
Oil and Gas Insurance
Basically, this constitutes various insurance policies targeted at the oil and gas sector of an economy. Its purpose is to provide adequate insurance coverage for every phase of the oil exploration, that is, from discovery to extraction of the oil.
At the exploration phase, the oil explorer is expected to lease a block for drilling. Such operator would require a Public Liability insurance policy (PL) to cover his / her obligations as contained in the lease agreement and any other regulatory permits. Other insurance policies such as Group Personal Accident, Fire and allied perils, Employers’ Liability, Motor insurance and any other policies needed for their operations akin to any other business venture may also be required. Since most oil exploration activities are conducted off shore at high seas, most targeted policies are appropriately worded in consonance with the nature of Oil and Gas operations. In this regard, policies relating to Marine Insurance, seepage and pollution insurance, removal of debris clause, rigs and equipment insurance, erection-all-risks insurance, loss of revenue insurance, sabotage and terrorism insurance, as well as kidnap and ransom insurance may also be required.
Market and Underwriting Capacity
Impliedly from the forum, most third world countries with oil finds lack the local market and capacity to underwrite such huge risks, as these policies are often denominated in US dollars and mostly placed in notable offshore markets. Pundits estimate that over 95 per cent of the global oil and gas insurance businesses are placed in the United Kingdom and the United States of America.
The Reality in Ghana
Realising the enormous benefits associated with the oil find, the Government of Ghana continues to encourage local capacity building in order to maximise the opportunities that abound. In this regard, the National Insurance Commission (NIC) in collaboration with the National Petroleum Authority of Ghana and other stakeholders have setup the Ghana Oil and Gas Insurance Pool (GOGIP), mainly involving Non- Life Insurers, to pull together local resources to underwrite oil and gas risks in Ghana. The GOGIC protocol is in accordance with the Petroleum (Local Content and Local Participation) Regulations 2013, (L.I. 2204) and the Insurance Act 2006, (Act 724). The protocol therefore offers opportunities for local underwriting companies and brokers to actively participate in the oil and gas business in Ghana.
The Upstream Oil & Gas Insurance Placement Protocol
This protocol sets out guidelines for local participation in the upstream petroleum sector in accordance with the Insurance Act 2007, Act 724 and the Petroleum (Local Content and Local Participation) Regulations 2013, (L.I. 2204). The following are some of the guidelines:
All upstream petroleum sector contractors, subcontractors, licensees or other allied entities shall give full consideration to existing Laws and Regulations prior to signing the financing agreements regarding petroleum activities in Ghana.
The NIC and NPC require all insurance and reinsurance of a contractor, subcontractor, licensee or other allied entity to be in strict compliance with the Insurance Act 2006, (Act 724), the Petroleum (Local Content and Local Participation) Regulations 2013, (L.I. 2204) and all other relevant laws and regulations.
All insurable risks of petroleum sector contractors, subcontractors, licensees or other allied entities shall be insured with the Ghana Oil and Gas Insurance Pool as the representative of all the licensed insurance companies in Ghana.
A contractor, subcontractor, licensee or other allied entity shall utilise the services of indigenous insurance brokerage firms in the primary placement of all insurances relating to petroleum activities; ensuring that as many indigenous Ghanaian firms are given maximum opportunity to fully participate in the sector in accordance with Regulations 1, 3 and 27(2) of the Petroleum (Local Content and Local Participation) Regulations, 2013, (L.I. 2204).
The surest way strengthening local capacity is to ensure that all or most of these guidelines work together for the good of the industry.
The excess of all insurance covers over and above the capacity of GOGIP shall be appropriately reinsured overseas after exhausting available local reinsurance capacity in accordance with Section 53(1) of the Insurance Act 2006, (Act 724).
The arrangements for the reinsurance of the risks over and above the capacity of GOGIP shall be submitted to the NIC for approval in accordance with Section 53(1) of the Insurance Act 2006, (Act 724).
The GOGIP shall in consultation with the contractor, subcontractor, licensee or other allied entity appoint a reinsurance broker to handle the placement of reinsurance(s).
GOGIP and the appointed reinsurance brokers shall ensure prompt remittance of the overseas reinsurance levy to the NIC.
Indeed, the forum to discuss the oil and gas insurance, for me, is one major commendable step in ensuring that various stakeholders frequently converge to evaluate the performance and the adherence to some of the guidelines as indicated above.
As prerequisite, all the stakeholders must commit to ensuring that appropriate inspections are regularly conducted in order that all oil and gas Insurance needs are appropriately placed on the local market. Stakeholders must also ensure that local technical capacity is developed to underwrite these complex risks.
Until next week,” This is Insurance from the eyes of my mind.” — GB