Will Ugandan insurers benefit from oil, gas led growth?

Hoima, Uganda | THE INDEPENDENT | Insurance is a vital aspect of society and investors in Uganda’s Oil and gas sector will require some form of insurance against unforeseen risks. 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 (FID) 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.

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.

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