The state of marine insurance in Nigeria

By Lakinbofa Goodluck

The importance of the maritime industry in international trade cannot be over-emphasised. In spite of the advancement human mobility, especially with the advent of rail transportation, road, air and other forms of travel, many continue to embrace water transportation because it is feasibly the most effective way to move large cargoes from one country to another. In fact, it is fitting to say that the maritime industry is arguably the most important aspect of international trade. According to the International Maritime Organisation (IMO), over 90% of the world’s trade is carried by sea and it is, by far, the most cost-effective way to move en masse goods and raw materials around the world. This simply suggests that the world’s economy will be hugely threatened if the maritime industry is endangered in any way. However, carrying the world’s trade by sea comes with its challenges and risks. The increase in maritime activities, and shipping in particular, has also given rise to criminal activities on the sea thereby increasing the attendant risks of maritime business.Some of the marine risks as outlined in the foremost insurance legal provision,the British Marine Insurance Act 1906, are perils of the seas, fire, theft, jettison, and piracy. Every ship on the sea is susceptible to any of the aforementioned risks, and the most effective mitigation is to embrace insurance. Marine risks and other challenges on the sea cannot be wished away; they can only be mitigated.

One of the oldest forms of insurance is marine insurance. The development of marine insurance is as old the beginning of international travel. Marine insurance is provided to ships, boats and most importantly, the cargo that is carried in them. It is the agreement between a shipowner and an insurer in which the latter agrees to indemnify the former in the event of loss. The Nigerian Marine Insurance Act, 1961, defines a marine insurance as a contract whereby the insurer undertakes to indemnify the assured, in manner and to the extent thereby agreed, against marine losses, that is to say, the losses incident to marine adventure.The complexities in the maritime business also necessitate the conception of various forms of marine insurance. Hull insurance mainly caters to the need of the torso and hull of the vessel along with all the articles and pieces of furniture on the ship. Cargo insurance covers damage to goods carried on board a ship, as well as prior to loading and after discharge and during inter-modal carriage. Another form is freight insurance which covers the earnings of freight and effected by the person entitled to the freight i.e. owner/charterer. Other forms of marine insurance are Protection and Indemnity, Port Operations, and more.It may appear insignificant but marine insurance is a big service sector of the overall maritime business world over. Marine insurance has resonated so well in some countries that it contributes significantly to their GDP. The International Union ofMarine Insurance (IUMI) puts the global marine insurance premium in 2014 at USD32.6 billion.

According to a study conducted by Oxford Economics, 37% of maritime business services in EU are in marine insurance.Marine insurance services alone contributed £2 billion to the UK’s economy in 2013. In developed countries the growth of maritime sector automatically translates to the growth of other ancillary services. The sad news is that the state of marine insurance in Nigeria is abysmally poor, which is a reflection of the overall insurance sector and the underdeveloped nature of our maritime industry.

Apart from the scant awareness and patronage of marine insurance in Nigeria, the sector is also affected by a myriad of challenges.In the basket of challenges are weak government legislation and policy, lack of human capital and expertise, and high level of ignorance.It is important to establish that Customs regulationsrequire every importer to locally insure a cargo coming into Nigeria. However many shippers ignore this Customs requirement. This deliberate disregard for a legal importation requirement introduces other issues that should be probed further. According to Customs regulations, any individual without insurance certificate for a cargo is expected to immediately paya fine. In order to quickly get cleared by the Customs, shippers usually opt to pay fine. And for those who are not interested in paying huge fine, they resort to patronising fake insurance agents who arrange fake insurance certificates.Sometimes shippers also patronise fake insurance agents in order to avoid paying exorbitant rate for a policy. This is symptomatic of the ignorance in the industry because in actual fact the premium for a policy is sometimes cheaper than the fine that will be paid to Customs in the absence of an insurance certificate or when the fake certificate is discovered.

To check the proliferation of fake insurance certificate in the sector, the Nigerian Insurers Association, NIA, came up with the marine module of the Nigeria Insurance Industry Database, NIID, to allow for online verification of insurance certificates.However, not many practitioners in the industry are currently aware of this provision to help in verifying their certificates, and as a result the unsuspecting continue to fall into the hands of the unscrupulous.

Whilst the NIA through the NIID innovation may have addressed the issue of fake insurance certificate, the other challenges facing the industry cannot be entirely addressed by NIA. Some of these issues require the involvement of the government. Obviously, many ship owners are not aware that ships coming into the country are required to insure their cargoes here in Nigeria. And when they come in without insurance certificates they are compelled to pay fine to Customs. Thus the funds that should have gone into the insurance sector go directly into the coffers of government. This is detrimental to the growth of the insurance business in Nigeria. As it stands the government makes money off the marine insurance sector; whilst the sector continues to suffer, the government generates more money. Perhaps, the appropriate thing would be for the government to immediately transfer a ship owner without insurance certificate to a competent andaccredited insurance company.

The insurers also need to do more to earn the confidence of maritime practitioners who are willing to do the right thing. Conceivably marine insurance in Nigeria would have been more developed if the practitioners were more competent in handling maritime issues. The maritime industry world over is a peculiar and complex sector that requires special expertise to manage the risk inherent in the business. A report by the Marine Insurance Committee of the Nigerian Insurers Associationreveals that the country is being deprived of billions of naira as a result of the dearth of local professionals in marine insurance. In another instance, it is estimated that the lack of professionals in the marine insurance business results in over N50billion annual loss. This shows that our insurance practitioners are not well equipped from the universities on the peculiarities of the maritime industry. This lack of expertise explains why some ship owners prefer to patronise foreign re-insurerswhich has further encouraged capital flight. This is happeningin spite of the fact that 41 insurance companies are licensed to transact marine insurance business. It was in an attempt to curb this practice that Hon. Mohammed GarbaGololo of the House of Representatives sponsored a bill for an Act to establish the National Marine Insurance Bureau, to take charge of and collect insurance levies on all Cargos of Crude or Gas leaving shores of the Country and to check the Billions of dollar capital flight which Nigeria loses to foreign insurance companies who monopolize and specialize in marine insurance in the Country, otherwise known as the National Marine Insurance Bureau (Establishment) Bill, 2016. However, what is more important isa reappraisal of the insurance curriculum in Nigerian universities, and the need for insurance companies to dedicate more funds into research and development, which is something we seldom do in this part of the world. No amount of legislation and local content policy can substitute for competency, especially when existing laws are deficient. Experts have also identified the operational law guiding marine insurance in Nigeria as out-dated. The Marine Insurance Act is a verbatim reproduction of the Marine Insurance Act 1906 of the United Kingdom, which has been reviewed in the UK to reflect current realities. It is difficult to see how the sector can progress when the operational legal framework is predicated on a century old foundation. Times have changed and there is need to repeal the law to reflect current realities.

As an import dependent country, marine insurance is a major maritime support service with enormous capacity for wealth. Just as many other aspects of the maritime industry, all that is required is a collective commitment to take advantage of the many opportunities waiting for our attention.