Dec 08, 2022 News
– local insurers say no money to be made, all control will rest with overseas players
Kaieteur News – ExxonMobil affiliate Esso Exploration and Production Guyana Limited (EEPGL) has begun its search for local insurance operators to provide coverage for at least two of its upcoming energy projects.
Service providers are concerned however that there is no real money to be made from the US multimillion dollar transactions since EEPGL is only seeking local firms to “front” the policy that will still be held by overseas insurers and out of the control of local companies.
Exxon just over a week ago said in a public notice that it was putting in place an agreement for the provision of local insurance services and requested information of commercial and technical content from suppliers for meeting EEPGL’s bid selection requirements for Local Guyana Insurers – Yellowtail and Gas to Energy Projects Development Insurance Program.
One local insurance operator who requested anonymity told this newspaper however that, “It appears from the advertisement that ExxonMobil has already placed the insurance cover or made arrangements for the cover to be placed on terms and conditions that they have negotiated, and now they just want somebody to front it which defeats the purpose of local content.”
It was explained that what is currently being asked for does not entail the business flowing from a broker and then that broker decides or negotiates with the insurance market. “They (Exxon) would have bypassed all of that and just giving a local company some crumbs to front for them.”
“What happens is that local company that is fronting will issue the paper, as they say, which is a policy document on terms and conditions following the overseas placement so that the local company will have no say in the terms and conditions. They will blindly issue the paper based on the terms and conditions from the reinsurance company.” “All decisions will be made by the people overseas, by the company providing the cover behind them. So, they are basically in front, but everything is done in the backroom. And all commissions, premiums and everything is collected in the backroom by Exxon’s overseas broker. And all we will be getting is one petty cash fronting fee,” the concerned agent asserted.
Another insurance operator who also requested anonymity said that Exxon in following local content procedure has put a tender out in the market for a “fronting insurer”. He said that when the request is looked at technically, “what they are saying is look we have arranged the cover and as a consequence what we need is for somebody to front it for us and I assume they would entail to some sort of a fee.”
A number of questions are raised, the local operator submitted. He said that in all the money to be earned, a very small part of it will be called the fronting fee and that is all that will be paid to the local insurer who is fronting the policy. “The entire premium coming into the industry which is what we have been fighting for to make sure that all of the premiums associated with any risk that is domicile in Guyana comes to the collective insurance brokers and the collective insurers – all that is lost.”
It was explained that when the local insurers consortium proposal was submitted to the Bank of Guyana several weeks ago, “it essentially meant that as an industry, the provision of insurance coverage was being approached as a collective to ensure that commissions that are usually payable to brokers and seeding commissions, which is what reinsurers pay insurers, once they have gotten that business, all of that revenue would come into the country. Frankly speaking, the agent said it is a “considerable” amount of revenue that would be coming to locals because any risk domicile in Guyana would include coverage for major equipment among others.
“So, it’s a considerable amount of money that we have lost in the period that essentially our laws are not being enforced.” And as long as (insurance) placement is done literally on a fronting basis all that is actually derived from this business is just the fronting fee paid to the insurer who agrees to front. The agent said that the EEPGL advert highlights that the local agents can write the coverage but can’t retain any part of it in Guyana, “the entire thing must be ensured abroad so as a consequence, there is no seeding commission being paid, no broker in between so no broking commissions are earned, and all that revenue goes to an external broker and then it goes to external reinsurers.” The consequence of that is the local industry is losing all that revenue that would have otherwise come to Guyana.
This money lost, the agent continued, could have assisted the local sector to increase its capacity since as the year goes by, the sector would be able to maintain more of the risk for themselves as they grow. The off spin, he added, “is that once we are growing, we are actually trickling that down because we are employing more people, we can have the University of Guyana then put attention to a degree in insurance etc. “So, we become far more skilled and at some point, we are able to handle the industry ourselves; in the years to come, we will retain a greater part of the risk which means we will earn directly and then we will earn seeding commissions from what is placed to reinsurers and of course we will earn brokerage, which is very important. “The advertisement could be found on the Centre for Local Business Development website.
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