Insurance is one business concept that is unpopular in Nigeria. In this piece, ONYEKORMAKA ASABOR looks at the implication of war risk insurance in the country
In today’s global economy, consumers are used to seeing products from every corner of the world in their local stores and retail shops. These overseas products, or imports, provide more choices to consumers. And because they are usually manufactured cheaper than any local equivalent, imports help consumers manage their strained household budgets.
In fact, the importing and exporting of goods and products has long been a key growth indicator for businesses for most countries, with particular reference to Nigeria in this context and the economy as a whole. But with war risk insurance on the horizon, how will consumers of imported goods across the country be affected?
War risk insurance covers damage due to acts of war, including invasion, insurrection, rebellion and hijacking. Some policies also cover damage due to weapons of mass destruction.
The Director-General of Nigerian Maritime Administration and Safety Agency, Dr Bashir Jamoh, few days ago, expressed worry over the persisting war risk insurance on Nigeria-bound cargoes, calling for its removal.
His call came as the additional cost to shippers is not just threatening Nigeria’s maritime trade but also the consumer market where the goods are finally sold to end users to bear the cost passed to them through the chain of distribution of imported goods.
According to Jamoh, piracy on Nigerian waters is waning, and stakeholders in the industry are worried that offshore underwriting firms still insist on very high premium to be paid by those conveying cargoes to Nigeria.
His words, “Since the deployment of the deep blue project assets in February, there had been steady decline in piracy on the Nigerian waters.
“We therefore, invite the international shipping community to rethink the issue of war-risk insurance on cargo bound for our ports. Nigeria has demonstrated enough commitment towards tackling maritime insecurity to avert such premium burden.”
Need for review
He argued that going by the burden the insurance cost would unarguably place on the shoulders of consumers of every imported item in the country, it is expedient that war risk insurance on Nigeria-bound cargoes is reviewed.
“It goes without saying that the negative consequence of this additional spending by shippers in Nigeria lies in the very high cost consumers in the country pay for imported goods,” Jamoh said.
Concept defined
War risk insurance, which is commonly used in the shipping and aviation sectors, he explained, is not necessary in Nigeria for now.
According to Investopedia, an online investment encyclopaedia committed to the simplification of complex financial information and decisions for its readers, war risk insurance is an insurance policy that provides financial protection to the policyholder against losses from invasions, insurrections, riots, strikes, revolutions, military coups and terrorism.
“Those entities, which have risk exposure to the possibility of sudden and violent political upheavals are good customers for war risk insurance. For example, companies operating in politically unstable parts of the world have to exposure an elevated risk of loss from acts of war. War risk insurance may cover perils such as kidnappings and ransom, sabotage, emergency evacuation, worker injury, long-term disability, and loss or damage of property and cargo.
“Also, some policies may cover event cancellations due to war. There are war risk insurance policies that include acts of terrorism, but others consider terrorism and war to be two separate categories of peril. Some countries may require airlines to have war risk insurance before they can operate in their airspace or use their airports,” he stated.
Milking Nigerian businesses
Kingsley Okuijen, an economist, said, “With the payment of Importers in Nigeria or exporters to the country from other economies, consumers down here will be paying comparatively higher prices for goods relative to their counterparts, say in Ghana or South Africa”.
Against this backdrop, he noted that the situation would not in any way augur well for consumers in Nigeria, as prices of goods imported into the country would be high.
He added, “Any extra charge levied by port authorities like the security service charges will be added to war risk insurance premium, and all these tend to affect the ocean freight rate.”
“The burden of the insurance premium, which may be passed to either the importer or the exporter – depending on who bears the cost – may appear inconsequential. it is, In fact, a huge cost to many businesses and consumers.
The negative impact will include increase in prices, leading to more inflation, less disposable income for already poor households resulting in lower consumption, and a decline in Gross Domestic Product growth.
Way out
On the way out, he said every stakeholder should throw his or her weight behind Jamoh, who is calling for the review of war risk insurance on Nigeria-bound cargoes.
Jamoh argues, “There has been a significant reduction in the rate of piracy on Nigeria’s maritime environment since February 2021, when Nigerian Maritime Administration and Safety Agency rolled out the Integrated National Security and Waterways Protection Infrastructure, popularly known as the Deep Blue Project.
“This should ordinarily be cheering news to maritime stakeholders in Nigeria, including the Federal Government, which has done a lot, perhaps more than any government before it, to make the country’s waterways safe for seafarers and for economic activities to thrive. But this has not been the case,” he had said.
As gathered by Financial Street, the issue of war risk insurance premium to insurance companies by importers of goods to Nigeria is not novel. The concern has been on since 2017. For instance, Hassan Bello, who officially ended his career at the Nigerian Shippers Council recently, after 22 years of service – including eight years in the council’s top leadership position as the executive secretary at the agency in 2017, expressed this while receiving his then counterpart at NIMASA, Dakuku Peterside.
Bello said there was need for collaboration between the NSC and NIMASA to tackle the problem and ensure that such charges were removed from Nigeria-bound vessels.
“Our concern is the surcharges on war risk insurance clause on Nigerian cargo because of piracy. We need to collaborate on that. Because of the issue of security in the Gulf of Guinea and because of apprehension, insurance companies usually levy cargo coming to Nigeria as war zone. But the incidence of piracy and armed robbery has reduced drastically. NIMASA and NSC will find ways to tackle that and ensure that such surcharges are removed from our cargo,” he said.
Prior to Bello’s worries over the development, a senior executive with LASACO Assurance at the time, Adu Gbolahan, was reported to have said the development would reduce business transactions as regards maritime activities.
He said any region designated as a war risk zone would always attract a higher premium, which eventually would eat into the profit of the ship-owner.
