The development of oil and gas infrastructure is likely to spur Uganda's Insurance sector but the biggest value will go to foreign insurance firms and brokers.
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The development of oil and gas and production stages will require insurance to cover the risks. How are Ugandans insurance firms prepared?
Insurance is a very vital aspect of
society and investors in Uganda’s Oil and gas sector will require some form of
insurance against unforeseen risks. So as the oil and gas sector
shifts into the development stage, some are predicting that the insurance
sector will emerge from its current lower base of 11% per annum to better
levels.
Maurice Amogola, the CEO of Minet Uganda expects that with the Final
Investment Decision taken with respect to major oil and gas projects in Uganda, the $20 billion plus investment will bring opportunities to various sectors including
insurance.
Amogola, whose
company is one of the oldest insurance brokers in Uganda observes that while
insurance capacity is not that developed, the potential for growth is enormous
with oil and gas developments at hand.
“The point is that we will start small and
grow, that the aspect about insurance is always spreading the risk," said Amogola. "So whereas
we have the Uganda Insurance Consortium taking part of the risk, the other
aspect of the risk will be re-insured in the international market.”
Some of the developments that are
likely to attract insurance include the East African Crude Oil Pipeline (EACOP),
the Aviation sector with Kabale International Airport, the Refinery, and most
of the operations at CNOOC’s Kingfisher and TotalEnergies Tilenga projects.
Local insurance operators have realized
the huge opportunities that are likely to come with the development and
production of oil. They birthed the Insurance Consortium
for Oil and Gas Uganda. The consortium is recognized by the Insurance
Regulatory Authority (IRA) under the Uganda Oil and Gas Co-Insurance Consortium
guidelines 2019.
Some experts in the insurance
industry applauded the fact that Uganda insurance operators realized their
strength was in coming together in order to get part of the pie.
“We will definitely through the Uganda
Insurance consortium retain part of that risk, but the risk that is being
retained locally is quite small in the value of the risk that we are looking at
within oil and gas,” concedes Amogola.
While countries like Angola early
in January this year added
insurance for companies in the oil and gas industry to the list of services
meant to be provided exclusively by local businesses, Amogola thinks Uganda has
not built that capacity yet.
“Because of the high values, and because
of the long tail of building capacity through capitalization, the retention
from a local perspective will still be small,” observed Amogola
“But there are other components
of the risks that will be covered by the local insurance companies. Risks like
workmen’s compensation, risks like group life insurances, like medical
insurance, risks like cyber insurance,” he said.
So, according to Amogola, the local
insurance companies will have to think through those risks with their local
insurance brokers so as to understand the magnitude of the risk they carry, put
in mechanisms to manage, and thereafter transfer those to an insurance company.
“But the important thing is
through the national content forum, we will also start small, but we will grow as
we enhance the oil and gas industry in Uganda,” said Amogola
Services likeOils
and Gas Well Control Insurance, Offshore Construction & Erection Insurance, Mobile Barge and Drilling Rigs insurance, and Drilling Equipment and Rigs
insurance among others are expected as the oil and gas sector grows.
TOTAL
East Africa Midstream B.V. has been running advertisements inviting experienced
and reputable insurance /reinsurance brokers to express their interest to insure /reinsurance
brokerage services for the East African Crude Oil Pipeline (EACOP) Project. The
deadline for the invitation was at the beginning of this month.
The
taking of a Final Investment Decision(FID) on the EACOP together with the advertisement
for insurers prompted sparked advocacy by climate activists targeting influential
insurers like AIG,
Allianz, Axa, Berkshire Hathaway, Chubb, Endurance (Sompo Group), Great
American Insurance, Intact, Liberty Mutual, Lloyds, Mapfre, PICC, The Hartford,
Tokio Marine, Travelers, Starr, Swiss Re, WR Berkley and Zurich against EACOP
and broadly of and gas projects in Uganda.
While members of activist
groups claim that some of the firms listed have indicated that they will not insure
EACOP, many including Marsh McLennan which has severally been identified as the
insurance broker for the East African Crude Oil Pipeline (EACOP) remained silent.
With the Energy Transition
debate, there is also debate whether insurance and banks should also unfriend
oil and gas developments.
