Business News of 2014-06-25

NIC, Petroleum C’ssion tighten insurance regime

The National Insurance Commission (NIC) and Petroleum Commission (PC) have put together guidelines to govern the uptake of insurance within the oil and gas industry, with the intention of maximisinge the participation of local insurance companies in the upstream petroleum sector.

The guidelines, which were discussed for adoption yesterday among upstream operators, NIC, PC, Ghana Insurance Brokers Association (GIBA) and the Ghana Oil and Gas Insurance pool (GOGIP), are also meant to halt the present practice whereby upstream operators cede their insurance business to insurers outside the shores of the country in contravention of the Insurance Act 2006 and the Petroleum (Local Content and Local Participation) Regulations 2013.

The guidelines are expected to apply to all insurance policies that are due for renewal.

However, due to some concerns raised by stakeholders in the guidelines, the NIC and PC have agreed to consider and incorporate participants’ views into the guidelines for adoption in the next two weeks, after which the sector minister will launch it.

The Deputy Commissioner of NIC, Simon Nerro Davor, explained that the guidelines are not new measures introduced to govern insurance business in the petroleum sector, as there are already laws and regulations passed by Parliament to oversee insurance in the petroleum sector.

He said the guidelines have been fashioned to make it clear and guide upstream operators in what to do when taking risk cover for their business operations in accordance with the local content laws of the petroleum industry.

Mr. Davor said the guidelines will streamline risk cover in the petroleum industry by making GOGIP- a consortium formed by all the general insurance companies- the main body to pool resources and underwrite oil and gas risks.

GIBA has also formed a brokerage pool called GIBA Energy Company to undertake insurance placements in the petroleum industry. The formation of these two bodies are seen as a major breakthrough for the industry as it offers an avenue for spreading risk involved in oil and gas insurance.

However, some of the upstream petroleum operators have expressed some concerns about the guidelines, seeing it as a new way to force insurance companies and brokers on them, a position the NIC has rebutted saying: “These are not new laws and regulations”.

Currently, concerns are rife among local insurers that upstream operators are not complying with the laws and regulations intended to boost local content by taking their business outside.

Additionally, there is a widespread worry that despite the huge sums of money spent every year on servicing operations within the oil industry, only a very little portion of the accruable profit is available to indigenous oil servicing firms -- resulting in capital flight within the oil and gas industry as profits from the contracts are repatriated abroad, where most of the international service firms are located.