Recent developments in the aviation sector including improvements made to the infrastructure at our airports and the implementation of regulatory measures to enhance experiences of airport users have required industry analysts to examine the risk management solutions available to address unexpected and unfortunate events that could make our investments futile.
Aviation Insurance, often considered the most appropriate pre-emptive action against these risks has not quite been available, accessible and affordable to airline operators in Nigeria, a position re-echoed at the just concluded Chinet Aviation and Cargo Conference, which attracted the best of both aviation and insurance sectors.
READ: Africa: Chinet: How funding challenges, low rates cripple ground handlers, safety in Nigeria’s aviation sector
Of all the challenges discussed at the Conference, these three (3) stood out for me and I will like to share my suggestions on how to overcome them:
1. Categorization of our Airspace – Nigeria is currently categorized as part of the African air region which lacks necessary infrastructure and experiences air mishaps sometimes attributable to the poor technical maintenance of the aged aircrafts in use. This is not the story of Nigeria and does not even compare, yet that is how we are categorized and the import of this “wrong” categorization easily reflects in the insurance rates that our insurers get from the international insurers at Lloyds of London and others, for our airlines. The Government of Nigeria therefore needs to consider making a case for Special Status that will permit Nigeria to be removed from the general African ranking and be ranked along with other safer destinations in Africa. This should be the starting point for addressing our aviation insurance challenge.
2. Low Capital of Insurers to Underwrite Aviation Insurance – As it has been said, aviation business is highly capital-intensive and requires insurers with access to significantly high capital to participate in the underwriting of the risks in the sector. Unfortunately, only a couple of insurers in Nigeria have the level of capital required and cannot allocate more capital that is reasonable under the circumstances to the aviation insurance area. The suspended effort by the insurance regulator, National Insurance Commission (NAICOM) was intended to address issues like this and we hope to see the conclusion of the recapitalization, which will strengthen the case for re-classification of our airspace.
3. Dearth of Aviation Insurance Underwriters – The Nigerian insurance industry currently faces serious lack of underwriting capacity when it comes to aviation insurance and this needs to be addressed from the regulatory standpoint just as NAICOM is doing about the case of Actuaries. Viewed from the point of increasing growth opportunities in travels and tourism and the resultant impact for the aviation sector, the insurance industry should see the need for a long term investment in building the capacity to do more than act as brokers to foreign reinsurers after many years of the law giving the rights to insure airline operations to local insurers.
READ: Africa: Chinet: Nigeria’s Airport regulatory body, FAAN develops strategic plan to support growth of air cargo business in aviation sector
Importantly, there is need for an Aviation-Insurance Working Group to be constituted at regulatory level with access to relevant capacity to consider the options that will ensure less expensive insurance coverage for airline operators while more premium can be retained in Nigeria. A different approach will give us a different result from what we have now.
By Ekerete Ola Gam-Ikon MNIM
Management Consultant on Insurance