Over the years, Lloyd’s of London was the first to make it possible to offer insurance in aviation. Ever since, aviation insurance has now become one of the largest sub-sectors in the global insurance market.
Despite the boom in that sector worldwide, Nigeria has been lagging behind because there is no capacity internally to do big aircraft insurance in the country.
Ideally, insurance companies are expected to be able to cover the cost of running the business, expenses, together with any investment income, provide a reasonable profit and return on the capital employed.
Similarly, the insurance market works to spread the risk between many insurers and reinsurers so that the amount any one insurer is exposed to is kept within acceptable limits.
For instance, big aircraft manufacturers like Airbus and Boeing will want a minimum of $600 million on a combined single limit. That is the standard for Airbus, Boeing and other aircraft manufacturers in that League.
Legally, any aircraft insurance policy in Nigeria is expected to be domiciled or originated in the country. It is only when there is no capacity that it can be done elsewhere. Sadly, most aircraft lessors, whether wet or dry lease, will want an insurance placed in Lloyd’s of London, Dubai or New York. The lessors would also go extra miles to ensure that the reinsurance has to be specific and not what they call facultative or group package.
Facultative reinsurance is coverage purchased by a primary insurer to cover a single risk—or a block of risks—held in the primary insurer’s book of business.. The other second leg of reinsurance is called treaty reinsurance.
As a result of these expectations that have to do with huge risks, many lessors are not operating in Nigeria because of their lack of capacity to shoulder the attendant risks, a situation that is giving most stakeholders a cause to worry.
Speaking on the issue of aviation insurance, Chief Operating Officer of United Nigeria Airlines, Mazi Osita Okonkwo confirmed that there is no capacity internally to do big aircraft insurance in Nigeria, adding that many big aircraft manufacturers will want a minimum of $600 million on a combined single limit.
Emphasising the importance of insurance in aviation, Mazi Okonkwo said “many aircraft 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”.
“So what people do is, they can do local, just to satisfy all righteousness, you still have to go outside and take another one to satisfy the manufacturers. There is nobody that will give you an aircraft today, sell or lease that will accept local insurance, especially if it is above $200 million. The other ones we have like Embraer, there is no problem because the capacity is there. They will syndicate 15 insurance companies, no problem. But when you start going to $600, $500, forget it”, he said.
Also speaking, an insurance expert, Dr Jude Makolo corroborated Mazi Okonkwo’s views, saying that aviation insurance is a big business and therefore, requires well capitalized insurance companies to handle.
Dr Makolo noted that aviation insurance is one of the most valuable types of insurance due to the risk associated with flights. He therefore advised local insurance companies that do not have enough capacity to team up with big international insurance firms through the process of indigenisation, so as to be relevant in the business.
“There are no two ways about it. And you cannot give what you don’t really have. Don’t forget aviation insurance caters specially to the operation of aircraft, as well as all the risks involved. Therefore, in simpler terms, you get financial compensation for your assets, if they get damaged in transit. The truth is that most assets in aviation have very high value. Although, there is this understanding that ‘the premiums of the many will pay the losses of the few’. But when the chips are down, you find out that only the big players can actually weather the storm”, Dr Makolo said.
Meanwhile, the current enactment regulating insurance business in Nigeria is the Insurance Act, 2003. The Act applies to all insurance businesses and insurers. The Aviation Insurance business is classified as general insurance.
In Nigeria, the Nigerian Civil Aviation Authority (NCAA) is saddled with the responsibility to ensure that all persons engaged in aviation operations comply with the minimum aviation requirements for air carriers to ensure compliance with their potential compensation obligations.
Pursuant to the Civil Aviation Act, any carrier or aerodrome operator, aviation fuel supplier, or any provider of ground handling services, meteorological services, air traffic control services, aircraft maintenance services, or provider of such other class of allied service as the Authority may from time to time determine in writing operating air transport services to, from or within Nigeria, shall maintain adequate insurance covering and also its liability towards compensation for damages may be sustained by third parties for an amount to be specified and in absence of such insurance shall be sufficient reason for refusal, suspension or revocation of the permission to operate the air transport service or services in Nigeria.
Also, the Nigerian Civil Aviation Authority requires aviation operators to submit copies of valid insurance certificates quarterly evidencing payment of premium and policy documents.
Regulation 18.11.17 of the Nigerian CAR- Air Transport Economic Regulations, 2015 prescribes the minimum third-party liability insurance limit for aircraft engaged in aircraft operations in Nigeria to be the maximum take-off weight (MTOW) of an aircraft. The regulations also prescribe the minimum insurance cover for carriage of passengers, mail, and cargo to be aircraft available seat capacity.
About the Author
Anthony Awunor, is a business correspondent who holds a Bachelor of Arts Degree in Linguistics (UNILAG). He is also an alumnus of the Nigerian College of Aviation Technology (NCAT), Zaria Kaduna State. He lives in Lagos.
