The loss of a whopping US$220million as a result was a source of concern; thus, culminating into the decision to provide a BIP. (Graphic Business September 12-18, 2017).
Indeed the decision to table this before the Parliament’s Select Committee on Mines and Energy by the GNPC officials could not have come at a more appropriate time as Ghana’s discovery of oil is exactly 10 years ago!
It is important to state that insurance policies for the oil fields have only five per cent of the risk being insured in Ghana. This may be worrisome as the greater portion of the risks sent outside the country is in mainly reinsurance.
With this good news, it is my expectation that a chunk of the insurance cover will remain in Ghana.
10 years after oil discovery
A decade ago, Ghana discovered crude oil in commercial quantities. Amid the excitement that came with it were those who predicted the possibility of the Dutch Disease infecting the nation, especially to the detriment of the agricultural sector.
Oil discovery by any country is indeed a joyous moment as it is believed that the oil find will propel the country into an exponential economic growth.
Though seen as good omen, it comes with its attendant risks that require well-established insurance underwriters to manage. It also walks hand-in-hand with its huge financial outlays in the area of infrastructural developments such as the construction of rigs, uninterrupted business flow, the digging of wells and office complexes which require several forms of insurance.
Oil and Gas Insurance
Oil and gas insurance covers a broad spectrum of insurances that constitutes basically various insurance policies targeted at the oil and gas sector of the economy.
Its purpose is to provide adequate insurance coverage for every phase of the oil exploration process from discovery through to the extraction of the oil, including a possible period of breakdown!
A mixed bag of oil and gas insurance
At the exploration phase, the oil explorer is expected to lease a block for drilling. Such operators would require a Public Liability insurance policy to cover their obligations at law as contained in the lease agreement and any other regulatory permits.
They will also require other insurance policies such as group personal accident, fire and allied perils, employers’ liability, motor insurance, and any other policies needed for their operation.
Since most oil exploration activities are conducted off-shore (or at high seas), most policies targeted for this sector require special wordings to take cognisance of the delicate nature of operation.
Some of the policies required are marine insurance, seepage and pollution insurance, removal of debris, rigs and equipment insurance, erection all-risk insurance, pollution liability insurance, loss of revenue insurance (i.e. business interruption insurance otherwise known as consequential loss), sabotage and piracy insurance, among others.
Market and underwriting capacity
Indeed Ghana and most third world countries with oil find lack the local market and the capacity to underwrite these huge risks; the reason most of these risks are placed in offshore markets.
These placements which are often done in notable insurance markets such as the UK and the USA provide insurance cover for up to 95% of the oil and gas industry, globally.
Having realised the economic challenge that it is likely to face in the area of insurance placement following the oil find, stakeholders have been duly tasked to explore the avenues for developing the local market / capacity to accommodate the oil and gas insurance.
In view of this, the National Insurance Commission (NIC), in collaboration with the Petroleum Commission (PC), has come out with the Ghana Oil and Gas Insurance Pool (GOGIP) to pool their resources together to underwrite oil and gas risks locally.
The NPC and the NIC supported by industry
stakeholders have developed this protocol for placing oil and gas insurance in Ghana in line with the Petroleum (Local Content and Local Participation) Regulations 2013, (L.I. 2204) and the Insurance Act 2006, (Act 724). The protocol has since created an opportunity for the local insurance companies and intermediaries to actively participate and play a lead role in the oil and gas business in Ghana.
The protocol for upstream oil & gas insurance placement
This protocol, which sets out the rationale and principles underlying placement of insurance in the upstream petroleum sector in accordance with the Insurance Act 2006, Act 724 and the Petroleum .
(Local Content and Local Participation) Regulations 2013, (L.I. 2204), also has additional procedures which must be complied with in placing upstream insurance.
It is my conviction that one of these protocols which stipulates that all insurable risks of petroleum sector contractors, subcontractors, licensees or other allied entities shall be insured with the GOGIP as the representative of all the licensed insurance companies in Ghana would work effectively. I believe this will be the surest way to strengthening local capacity.
The way forward
As required by the protocol, all the stakeholders must show interest in ensuring that appropriate inspections are conducted periodically to ensure that all oil and gas insurance needs are appropriately placed in the local market. They must also ensure that the local technical capacity is developed and ‘battle-ready’ to underwrite these complex risks.
Similarly, various stakeholders should not assume cover but must be consulting with experts in the insurance industry through GOGIP to advise them appropriately. With this, significant losses can be duly compensated for.
The GOGIP and the appointed reinsurance brokers shall ensure prompt remittance of the overseas reinsurance levy to the NIC is one which stakeholders must not lose sight of.
Having said that, attention must equally be paid to all other lines of insurance that may not directly be related to oil and gas insurance but may affect operations in the sector and that includes personal accident insurance for employees.