Insurance and foreign direct investments

Sir: Do you know that the state of the insurance industry in Nigeria or any country determines the kinds of foreign investments into the country?

So, the law requires that all insurance coverages are done locally and only when the local market capacity has been exhausted that the organisations can take the balance abroad.

Often times, the local market capacity may be able to handle only five per cent of the risks associated with the foreign investment and the balance 95 per cent have to be taken abroad. This situation is common in Special Risks, which exist in aviation, cyberspace, energy, marine, oil and gas sectors.
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Even a motor vehicle manufacturing plant worth US$200 million might be difficult to insure fully by our local market. At an exchange rate of N700 per US$1, we’re looking at N140 billion worth of insurance. How many of such plants can be located in Nigeria despite our craze for cars, when the insurance sector cannot fully handle it?

Otherwise, with huge losses and damages resulting from recent floodings, would the low capacity of local insurers not have been exposed if 50 per cent of our insurable risks were actually insured against flood?

Maybe we can consider changing the situation in future by embarking on a deliberate 10-year risk management plan to build local capacity for underwriting some of the risks we have had to release abroad.

Without a strong insurance industry, fairly valued in foreign currency, attracting some kinds of foreign investments into the country might remain just another conversation.

Ekerete Ola Gam-Ikon.
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