By JEFF ADE

Commissioner for Insurance and Chief Executive Officer, National Insurance Commission (NAICOM), Mr Olusegun Ayo Omosehin, at the 4th CHINET Aviacargo Conference 2024, emphasised the need for stakeholders to make insurance the centre of decisions aimed to enhance, sustain and facilitate economic growth and development in the country. He spoke on the role of insurance in aviation business as a special guest of honour at the event.

According to him, the insurance sector remains a critical part of any nation’s economy and has the potential of galvanizing the optimal performance of other sectors.

Buttressing his point, he stated that the role of insurance cannot be overemphasized as it helps and allows airlines, manufacturers, operators to transfer the financial burden of potential losses to insurance companies. He also said that insurance plays a pivotal role in facilitating investment and financing, especially in the aviation industry, which is a capital-intensive and requires huge funds with investors more likely to fund and venture in when there is adequate insurance coverage in place.

His words: “It is therefore imperative to plant “Insurance” at the center of any equation designed to enhance, sustain and facilitate economic growth and development of any country.

“There is therefore the need for mutual understanding and cooperation to enable the Nigerian insurance industry attain its rightful position in our economy.”

According to the CFI, “the Commission would like to appeal to all stakeholders in the aviation sector to see the bigger picture of growing our industries beyond the immediate individual gains, but rather, collectively growing an economy that is sustainable and self-reliance to absorb shocks.

“The role of insurance should therefore be seen beyond just financial protection, to one that is a very critical part of the economy. The entire insurance value-chain is intended to enhance efficient allocation of resources in market-oriented economies everywhere. Specifically, it Is noteworthy that insurance companies facilitate investment in infrastructure and high-risk/return activities, by generating sources of long-term finance, manage high-risk exposures as well as help stimulate the growth of debt and equity markets.

“As a regulator in the financial services sector, our role is to ensure stability of the financial system, improve soundness of our operators in the insurance sector and safeguard policyholders’ interest. We are committed to giving adequate support to operators in the insurance sector and confidence to operators in the aviation industry in our effort to promote economic growth and development of our nation, Nigeria.”

The role of insurance In aviation business may be underestimated, he observed, but it remains a crucial pillar of the aviation industry, especially as it serves as a risk management tool, safety net and a catalyst for growth and development of every sector of the economy, including the aviation sector.

He added: “Today, we stand at the brink of an exciting new era in the aviation industry which envisions a landscape that is consistent with advancements such as the rise of electric and hybrid aircraft. These advancements are expected to reduce our carbon footprint and enhance energy efficiency; creating faster, cleaner and quieter aircraft.

“The future of the aviation industry is full of potential.

The future of the aviation industry that would be characterized by predictive maintenance for aircraft, automation of air traffic control system for optimization of routes, and such likes, cannot therefore be discussed without considering the complementary inherent risks and role of insurance in mitigating those risks.

“There are macro-economic trends that clearly show that we now live in the age of disruptions. Among these macro-economic trends are environmental patterns that have characterized the way businesses are run.

“Aviation business is an international business that is complex in its designs, operations and fraught with risks of accidents, equipment failures and all devices that can ground operations, as well as threaten assets of the industry.

“The nature of insurance operations on the other side is also international due to the concept of spreading of risks. Aviation insurers transfer risks globally through Reinsurance, pooling and mechanisms. Insurance is the most favoured risk transfer mechanism to buffer crystallization of unforeseen events such as accident, fire, and air crashes, which have tested the resilience of the insurance industry.

Insurance as an international business cannot therefore be seen to work in isolation.

“Consequently, the external environments and its changes became determining factors of how the Nigeria aviation insurance market is largely affected.”

The NAICOM CEO further remarked that insurance all over the world is anchored strongly on law-of-large-numbers, portfolio diversification and pooling arrangement. “It is on this strength that risks insured in Country ABC will find itself in many continents of the World by way of underwriting and placements. The re-insurance industry has come to the fore in the light of its crucial role in supporting catastrophe risks and in maintaining financial stability.

“Notwithstanding the international nature of aviation business and insurance operations, professionals in the country where the subject matter of insurance is situated cannot be ignored in profiling of the risk. “Risk profiling centres on obtaining right information about the subject matter of Insurance using a known risk assessment technique that is suitable to enhance evaluation of risk and ultimately fostering a commensurable risk control decision,” he said

According to him, it has been observed over time that customers’ behaviours change over time due to changes in many controllable and uncontrollable factors further amplified by many environmental changes that are not only imminent but also peculiar to the aviation industry.

“The Nigerian Insurance sector is therefore best fit to understand the patterns, behaviours, and risk profiles of the various sectors, in the best interest of the insuring public and businesses in Nigeria, whilst layering its support from its reinsurers.

“Unfortunately, the Insurance Industry is not insulated from the pressure of disruptive environmental patterns, especially the external environment, thereby affecting how businesses are conducted by Underwriters. We can almost ascertain that insurance sector is facing significant waves of disruption, spanning new innovations to changes in market positioning, dilution of the aviation insurance ecosystem, technology, changing nature of aviation risks and skills in underwriting aviation businesses.

“It might have been observed, that the experiential pressure of finance has shaped thought process and behaviour of actors in the financial space, which must be well understood by all stakeholders. There is now forced financial discipline; habits are now formed with respect to new changing monetary policy; personal and corporate finance now exposes many to unprecedented access to avalanche of information on finance which may have become more complex due to the opportunities created in the information flux.

“To mirror real exposure, underwriters use a combination of forecasted worst case scenarios of exposures and historical experience. It is not Impossible for multiple hulls to be lost and loss of several lives in the event of a disaster. However, likelihood is more of a risk estimation concerns rather than exposure measurement.”

Omosehin observed that there are changes in the business environments that embody drawback that must be addressed in profiling of risks and insurance practice in Nigeria.

He also said that there Is now the dare need for a deliberate and systematic action towards addressing leading events that are capable of distorting the sustainability of growth and development.

His words: “The capacity of aviation insurance in Nigeria is regulated by the National Insurance Commission (NAICOM). The Commission which is the agency of the Government that is responsible for maintaining stability, safety and financial soundness of insurance operators in the sector, thus closely monitors the placement of aviation risks in Nigeria.

“The supervision of aviation insurance placements has in no doubt increased over the years, especially on very high risks that may warrant placement of a portion of the risk offshore by way of Reinsurance support. In view of this, the Lead Underwriter or placement Broker is expected to seek the National Insurance Commission’s “Approval in Principle” to place the excess of the available Local Capacity offshore. In this instance the regulator (NAICOM) is privileged to see the entire process from provisional stage of product packaging to the actual consummation of the contract and placements.

“NAICOM through its prudential regulations had specified minimum prudential standards for underwriting, reinsurance, investments, reserving, and outsourcing.

The Prudential Guidelines also deals with aviation insurance and returns, with the ultimate intention of protecting consumers and stakeholders in the industry, ensuring a safe and stable insurance industry, as well as boosting confidence in the sector.”

Some of the prescribed minimum prudential standards that guides activities in aviation underwriting in Nigeria, according to the CFI were identified to include the general requirements that all aviation insurance business shall be conducted in accordance with extant insurance laws and other relevant regulations, ensuring that establishment of underwriting terms and conditions for any aviation and its associated risks in Nigeria are the responsibility of an Insurer duly licensed to transact insurance business in Nigeria. This is without prejudice to an Insurer’s need to seek expert advice from its reinsurers for appropriate risk rating/pricing.

The guidelines also require all underwriting firms to ensure that all aviation insurance transactions are conducted in compliance with contract certainty principles and requirements; among which all aviation insurance liability policies for any Nigeria domiciled risk are to conform to the minimum Passenger Liability Limit as required by the Nigerian Civil Aviation Authority.

Every Insurer and/or coinsurer also shall, prior to accepting, signing and/or stamping any Aviation Insurance policy/schedule of coinsurers, carry out risk measurement and Exposure Assessment vis-a-viz its available capacity.

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