With Uganda and the entire East African region fast becoming a lucrative oil and gas frontier how ready are insurance companies to tap into the boom?
Speaking today at the fourth oil and gas convention organised by the Uganda Chamber of Mines and Petroleum, insurance company Aon plc’s director in the national and global division Neil Genders said that the bulk of risks involved are “high and scary” but the prospects are lucrative.
Mr Genders described the onshore construction insurance market as “aggressive” mainly as a result of overcapacity due to attractive investment opportunities, with capacity levels in excess of $4 billion. The global capacity is stable “but pressure is on insurer margins and rate reductions are harder to achieve.”
While Uganda’s insurance industry is “relatively new to energy risks” and will require a steady accumulation of capital growth through writing quality risks, charging equitable fronting fees, training to expand knowledge and understanding of the risks.
“Beware! A small event on an energy risk can cause a huge claim far in excess of premium paid,” he said.
There are about 29 insurance companies and 1 reinsurance company as at the end of last year, according to the Insurance Regulatory Authority of Uganda, with three international players; Marsh, AON (re-launched as Minet) and Grass Savoy.
According to IRA, in terms of premium written, the insurance companies wrote an estimated $129m in gross premiums of which $100M was written in non-life insurance and $27m in life representing a growth of only 4 percent from 2015.
Several insurance firms have previously hinted on building capacity through establishment of the oil and gas co-insurance syndicate which was approved by the IRA in 2016, and are now pushing to ensure that the local content is upheld to allow local firms write most of the risk related to the sector.
Uganda is prepping for the next development and production stages of the oil cycle with expected new investments between $8b-$15b, going to development of the oil fields in Nwoya, Buliisa and Hoima districts, a Greenfield oil refinery and crude oil export pipeline.
The capital expenditure for developing the oil fields is approximated at $6.7b while both the pipeline and refinery are expected to cost a combined $6b.
In the sector, everything is insured from oil deposits to processes in upstream to infrastructure in the midstream and downstream sectors. There are different classes of insurance covers for all these.
Mr Genders said some of the onshore (oil on land) underwriter considerations include among others risk profile—looking at description of project, plant designs (tried and tested or prototypical): values and loss estimates which details estimated maximum loss, delay in start-up, location, proximity to towns/villages and susceptibility to natural calamities; and contractors/sub-contractors involved, looking at experience/history of previous works, project schedule and loss record.