The cost of insurance in the Nigerian aviation sector has risen from N11 billion annually in 2017 to about N13 billion annually, figures released yesterday by the Airline Operators of Nigeria (AON) have shown.
According to the association, Nigeria pays the highest premium among African countries that are not at war, just as it attributed the development to the increased level of risks associated with the country's operating environment.
However, AON attributed the increase in insurance premium globally to the Boeing 737 Max accidents.
It also said the insurance premium paid in Nigeria was about 10 per cent of the total value of each aircraft in operators' fleet.
The Chief Executive Officer of West Link Airline, which is based both in Ghana and Nigeria, Captain Ibrahim Mshelia, told THISDAY wednesday that the cost of aircraft insurance premium in Nigeria might be the highest "all over," noting that Nigeria pays higher insurance premium for aircraft than Ghana because Ghana insurance companies do not go through many brokers; so, the premium is relatively lower.
He said: "Actually we are higher all over. You pay lesser premium in Ghana than in Nigeria because of the greed of our people. But in the United States I once paid insurance premium of $60,000; but in Nigeria, they can charge you as high as $200,000.
"Ghana pays less because they don't go through many brokers but Nigerian insurance companies are becoming more competitive so things are changing. Everything is about how you negotiate with the company."
The Executive Chairman of AON, Captain Nogie Meggison, who gave the N13 billion figure, also told THISDAY that what Nigerian airlines pay for insurance was higher than the insurance premium paid by airline operators in Ghana, Cote d'Ivoire, Senegal and other countries in West and other parts of Africa that are not at war.
He said in Europe and the United States, airlines were paying about one per cent of insurance premium being paid in Nigeria.
He added that in Nigeria if the sum assured is $800 million, the airlines pay a premium of 10 per cent but in the United States, if the sum assured is $800 million, they pay a premium of one per cent.
Megisson said Nigeria had been categorised as high risk and harsh environment for flight operations.
According to him, Nigeria is also said to lack rule of law and policy consistency, adding that insuring through local insurers has upped the premium for indigenous carriers due to local content policy.
He stated that categorising Nigeria as high-risk environment had also affected aircraft leasing.
He said there were indications that there was unofficial blacklisting of Nigerian airlines as plans to lease aircraft by some airlines since early last year had been rebuffed by lessors.
Also THISDAY gathered that what has contributed to the high premium is that while Nigerian insurance companies do not have the capacity to undertake the full risk of aircraft and hull, the airlines must pass through the locals who serve as underwriters, but insure the airlines overseas.
This is in accordance with the local content policy of the federal government.
The CEO of Aero Contractors, Captain Ado Sanusi, stressed the need for a review of the local content law, urging the government to ensure that Nigeria is not categorised as a high country risk.
Sanusi also said global insurance went up because Nigeria was designated as high country risk, thus increasing the cost of insurance.
He said: "In fact, our insurance (Aero) has gone up a bit higher than that. So, the reason why globally insurance has gone up in some cases is because of the accident with the Boeing 737 Max and then the Russian accident as well.
"So that actually increased the global insurance but in Nigeria because of country risk and because of so many things that are happening in the industry that are reported in the media, like the man that was climbing that aircraft wing at the Lagos airport and all that, airlines pay higher premium."
Sanusi added that to improve the situation, the federal government should assure the international community that it is committed to improving the industry in terms of safety and security concerns and also empower the Nigerian Civil Aviation Authority (NCAA) to be independent.
"But in a situation where they are reading in the newspapers that the Accident Investigation Bureau (AIB) is having some issues with NCAA, does not augur well for the aviation industry," Sanusi said.
He added that as Nigerian insurance company could not fully insure aircraft and hull because of limited capital and funds, government should review downwards the percentage of local content for the insurance industry.
"Look at it this way, a brand new aircraft can cost $100 million. Now in case there is a claim for two of those; that is $200 million. Which of the insurance companies in Nigeria can boast of giving $200 million on claims on the machines alone and not on the hull - just the equipment?
"And I think the hull (passengers) is up to $500 million, we are talking about billions. We have not developed our insurance companies' policy to absorb those kinds of things. So, I think we have to involve the international market. What I think we should do is that we should start from five per cent to 10 per cent local content, we should be moving gradually. When we see how good the growth of the insurance sector is, then that is when we should be increasing the percentage," Sanusi said.
Former Managing Director of Capital Airline and an industry consultant with the Efmitri Group, Amos Akpan, told THISDAY that like all other agencies and components that make the aviation industry in Nigeria, insurance companies operate with focus on their profit in disregard to the economic survival of the airlines.
"Truth is that airports, insurance companies, handling companies, regulatory agencies, exist because airlines operate. You can imagine an airport or a handling company existing without any airline to service.
"It is ironic for these components to conduct their businesses without regard to what will make or mar the survival of the airlines. I am of the opinion that the airline that meets cost and makes little profit is better positioned to adhere to safety practices. An airline that is not meeting cost is most likely to be under pressure to commit unnoticeable compromises in safety," Akpan said.
He noted that insurance companies in Nigeria are brokers to foreign insurance companies like Lloyds, adding that they accept high premium payment category for Nigerian registered aircraft.
"This means operators in Nigeria pay higher premium than operators in South Africa, or Ethiopia, or London with the same aircraft type. The foreign insurance companies and the Nigerian brokers place higher risk for Nigerian operations. Same rate they apply to Somalia, Afghanistan, Syria, DRC (war-torn area). This categorisation is not correct because Nigeria is not a war theatre.
"NCAA should investigate this assertion and guide the insurance companies. The fallout from this is that our airlines now shop for insurance from the eastern bloc; Russia, Ukraine . They are cheaper but reputation and integrity of the companies are not tested.
"NCAA does not have a department that ensures that the insurance certificate goes beyond the paper (cover note) to receipt of payment for the premium. It is my humble opinion that Nigerian insurance companies should deepen the capacity of their aviation desk to gain know-how and the financial base required to provide insurance for airline operators," he said.