LOCAL insurance companies are developing an insurance pool for local insurers to benefit from the oil and gas industry. This will ensure growth of their capital to handle deals.
It is understood that each insurance company would bring a certain amount as their retention share in a consortium to underwrite risks in oil and gas sub-sector, which grosses in billions of dollars.
"We are in the process of developing an insurance pool for local insurers to bring a certain amount as their retention share," REAL Insurance Head of Business Development and Marketing, Mr Amani Boma, said.
He noted there were various steps in the industry, including exploration (downstream and hydrocarbon production), shipping, production, transportation, storage and marketing and that each of these steps are usually insured.
Mr Amani made the point when addressing industry stakeholders in Dar es Salaam that it was one way local insurers would get a stake in underwriting property and services being offered by multinational oil and gas exploration companies.
Explaining the challenges, he observed that it is low capitalisation that had kept most local insurance firms away from joining the lucrative sub-sector.
Mr Amani told his audience that the industry was awaiting the local content policy currently in final touches, noting that there is a general lack of awareness or information on the existing opportunities to explore. He mentioned other challenges as low capacity in terms of capital and standards.
The senior insurance official also pointed out that they have developed insurance cover for local suppliers for the sector coupled with customization of insurance products to suit the oil and gas industry needs and local suppliers up to a certain level.
TAN-RE Chief Executive Officer, Mr Rajab Kakusa, was recently quoted saying that due to the size and scale of the capital involved, the risks posed by oil and gas extraction cannot be carried by a single insurance company alone.
Given the country's lack of experience in the oil and gas sector, Mr Kakusa noted that TAN-RE had sought consultants from abroad with experience in oil and gas extraction, to help advice the domestic industry.
Experts estimate that with booming oil and gas extraction, the country's annual gross premium will peak 2tri/- in the next five to 10 years.
According to Amedeus Shayo, a legal and political analyst based in Arusha, given the low rate of insurance penetration, oil and gas offers another avenue for the insurance sector.
"To attain high level of capital, they must start to embark on identifying possible joint ventures with multinational insurance groups that have muscles to inject high capital that is required to absorb oil and gas risks," he noted.