Nigerian airlines, so as to meet the regulation of the National Insurance Commission (NAICOM), ensure local insurance of their aircraft and international insurance of the same aircraft with international insurance companies like Lloyd. This double insurance practice is done by Nigerian airlines to meet the standard of aircraft manufacturers and lessors. Experts in the aircraft industry have projected that the double premium practiced by Nigerian airlines costs an estimation of more than N300 billion yearly.
It has been said that there is a harsh environment for operation of aircrafts within Nigeria. As a result, while several countries pay one percent value of an aircraft in insurance, Nigeria is mandated to pay eight times of the value of the same aircraft. So, Nigerian airlines pay expensive insurance premiums compared to other countries across the globe due to its designation as high risk country. International aircraft insurance companies are responsible for defending the high premium paid by Nigerian airlines, oblivious of the high premium paid to meet local NAICOM.
Country does not have internal capacity for massive insurance.
The Chief Operating Officer of United Nigeria airlines, Osita Okonkwo, stated that some lessors have refused to lease aircraft to Nigerian airlines due to the country’s insurance policies. Lessors who lease their aircraft enforce wet lease which includes them in management of the aircraft, maintenance, crew and insurance, contrary to dry lease which leaves management, maintenance and crew to the airline. He added that the inability of Nigeria to insure its aircrafts is at the cost of the individual airlines.
Thus, Nigerian carriers employ group insurance which is unacceptable by aircraft manufacturers and lessors. According to Okonkwo, on many occasions, lessors are attracted to the books and performances of Nigerian airlines but are unable to lease the aircraft due to the country’s risk rating; with this, he urged the government to find a means of resolving the issue. He further said that Nigeria lacks internal capacity for massive insurance like aircraft insurance.
Lessors prefer their aircrafts insured in London, Dubai or New York.
Given the law that says insurance must be originated in Nigeria, several massive aircrafts are likely to go for a $600 million minimum combined single unit. However, lessors, when leasing their aircrafts, either through dry or wet lease, always like their aircraft insurance done in London by Lloyds or in New York or in Dubai. They likewise ensure reinsurance specificity, ruling out group insurance. As a result, Nigerian airlines fulfill the Nigerian law of local insurance and the lessors’ requirement of international insurance.
Additionally, it was deduced that many lessors refuse to operate in Nigeria because of the country’s insurance state. This deduction has made the COO of the United Nigeria Airlines to emphasize the need for NAICOM education concerning the situation. He included the fact that even indigenization cannot be achieved with another’s man’s asset, so Nigerian airlines do local insurance to obey the law while they go the extra mile to satisfy the manufacturer or lessor – a practice regarded as double cost.
Local insurance would help development of local market.
According to reports, in 2017 Nigerian airlines paid an annual average of $1 million for insurance of a B737-300 aircraft compared to Ghanaian and US airlines which pay between $200,000 and $300,000 respectively for insurance of the same aircraft. However, in defense of the Nigerian policy, the Managing Director of Universal Insurance Plc, Ben Ujoatuonu, asserted that the insurance of airlines must be done in Nigeria according to the local content rule as it would help develop local market and enable reduction of foreign exchange flight to international market.