Airlines Demand Review of Aircraft Insurance

Nigerian airlines have called on the federal government to save them from the exploitative insurance premium they pay which, according to them, is the highest in Africa.

The airlines said the high premium was not justifiable because it takes a huge chunk of their revenues, because aviation fuel alone takes over 40 per cent of cost of operation.

The airlines faulted the system whereby Nigeria Insurance Commission (NAICOM) insists that they must insure their aircraft through Nigerian insurance companies, which partners the international insurance companies to spread the risk, insisting that they would prefer to insure directly with the international insurers.

Chairman of Air Peace, Allen Onyema, specifically,  complained that the “insurance premium digs a hole” in the revenues of Nigerian airlines.

“The Insurance premium we pay here is very high and it is not something funny. Abroad, they pay nothing or close to little to get their fleet insured but over here the insurance takes a lot out of us. Again the foreign exchange, everything about aviation is computed in dollars.  You and I know that from N160 to a dollar overnight it became N235, so what do you do? You must buy the spare parts in dollars, you must get every other thing you want to do in dollars because everything is computed in dollars. In fact some of your crew are paid in dollars if you have some foreign crew,” Onyema said.

But NAICOM had said that as a regulator, it has the duty to ensure that Nigerian insurance companies participate in insuring airlines in Nigeria because that is the way it is done in other countries.

However, the airlines complain it drives up the cost of insurance and expressed the fear that if government does not step in, premium and cost of fuel will drive some airlines out of existence.

Government, they said, should question the position of insurers that Nigeria is a high risk country, which was what drove insurance premium too high.

Also commenting on the issue, the Managing Director of Arik Air, Chris Ndulue admitted that insurance companies’ assessment of Nigeria as high risk country might be responsible for the high insurance premium Nigerian airlines pay for their aircraft.

Ndulue said that Nigeria is wrongly perceived as high risk country because of the activities of insurgents who operate at only one section of the country, adding that this might have influenced the high aircraft insurance cost in the country.

“The premium on aircraft insurance paid by airlines is something that is decided on case by case basis and it reflects the insurance company’s assessment of the risk. So if they think your risk is high, your premium is bound to be high and if they think my risk is lower, my premium will be lower.

“The only thing that will make a difference between insurance premium in Nigeria and in South Africa is country risk. Nigeria’s may be high because it will reflect the insurer’s perception of the country risk. If Nigeria’s insurance premium is higher than that of South Africa then insurance companies have assumed that Nigeria’s country risk is higher than that of South Africa.

“International perception of Nigeria is unfavourable but Nigeria is not as bad as it is perceived to be. If you don’t check that very well you pay a country risk that is far higher than what you should pay, especially with the issues of Boko Haram,” Ndulue told THISDAY recently.

Industry analysts suggest that government should convene a meeting between the Nigerian Civil Aviation Authority (NCAA), NAICOM, the airlines and Ministry of Aviation officials to arrive at a compromise on how to lower insurance premium for Nigerian airlines.

source: Thisday