…say being ignored, bypassed for contracts
Kaieteur News – The local insurance community has made it clear that there is much value and expertise it could add to the management and oversight of the growing oil and gas industry, but their involvement in the sector continues to be overlooked. Both the Insurance Association of Guyana and the Guyana Insurance Brokers Association have insisted that they have the capacity and capabilities to cover the insurance needs of the oil sector.
In a public missive, the group fiercely dismissed claims that the local industry lacks the financial capacity and necessary skills to handle the massive ExxonMobil projects underway at the Stabroek Block. In replying to a June 7, letter titled “Just some thoughts on Oil and Gas Insurance,” and unofficial claims about the industry’s inabilities, the group described them as “inaccuracies and misconceptions” being peddled while “the role and importance of the insurance regulatory authority, and the governing insurance law is being dismissed.”
The group said that the capability of any company to provide professional insurance services is assessed via three main criteria; technical, financial and regulatory. That is, the relevant skill and experience; financial capacity to underwrite risks; and having passed the relevant assessment by regulators, being licensed and regulated accordingly, and operating within the law.
From a technical standpoint, the industry said it prides itself on employing insurance professionals that meet the highest global standards in all key positions. It said that while in-house oil and gas experience is new to the whole of Guyana, the local industry was among the first to train and certify its technical staff in oil and gas insurance following oil discovery announcements in 2015, with programs conducted by the world’s leading insurance brokers.
On the financial end, the industry explained that insurance is a risk transfer mechanism whereby persons pay a premium (sum) to transfer their risk of loss to the insurance company. The insurance company spreads the risk among many others whose premiums constitute an insurance pool, allowing the possible loss of a few to be borne by the many who would not suffer similar losses. The group said that insurers who manage these insurance pools further cut up and transfer portions of the risks globally to reinsurers who take a commensurate share of the premiums while reinsurers also spread their risk globally in a process called retrocession. The financial capacity of an insurer to underwrite a particular risk, is therefore primarily a function of how well the insurer could spread the risk through reinsurance, the group said. They added therefore, that “The small part of the risk that is actually retained by the insurer on their own account would in our case be relatively small due to the size of our industry, but that in no way hampers the local industry from undertaking the largest risks via the aforementioned reinsurance tool.” They said too that with over 700 years of experience, the industry “is quite capable of underwriting all the oil and gas risk currently emanating and expected from Guyana.” It is this capability, they continued, that convinced the Guyana Government “to rightfully provide in the Local Content Act 2021 that the local insurance industry ought to receive 100 percent of all oil and gas insurance business.”
On the regulatory aspect, the group said that the insurance environment involves the governing and oversight of the insurance industry, primarily for the protection of policyholders. They said that “Regulators want to know that insurance companies are technically capable, have the right reinsurance programmes and have the financial capability to pay claims on insurance policies. In Guyana, the regulator, The Bank of Guyana (BOG), uses several measures to make such assessments. Once satisfied that all benchmarks have been met, the regulators license the insurers to operate in Guyana. The BOG is empowered by virtue of the Insurance Act 2016,” the group highlighted.
They said the 2016 Insurance Act also protects the interests of the country and the insurance industry by strictly prohibiting the direct placement of insurances to foreign non-admitted carriers unless by engagement through a local ‘fronting’ Insurer or through a Local Insurance broker in possession of a Special Brokers License. The group continued that the Local Content Act provides a mechanism whereby oil and gas insurance premiums, that are deductible as Cost Oil, would be remitted to the benefit of the local economy. The group said that the local industry stands to earn from oil and gas insurance, premiums, reinsurance commissions and fees, and brokerage commissions. Added to this, the local industry said it stands capable and ready to advise the government on insurance and Risk Management matters regarding oil and gas. “Unfortunately, the local insurance industry has, so far, mostly been bypassed in providing the services that it is fully capable and prepared to do…”
The group said that the local industry is in fact “an integral, underutilized part of the Government’s natural mechanism in negotiation of coverage and management and oversight of oil and gas risk.” They said that the local industry knows and understands the intricacies of insurance and should be playing an integral role on behalf of the government. As such the group said it “firmly believes that our country remains at risk as long as it is unable to verify the particulars of every placement, in particular the financial ratings of every insurer utilized, its relationship to the insured and the particulars of cover including relevant clauses in relation to Guyana’s exposure to liability.”
“We therefore remain deeply concerned that our economy is not yet benefiting from the industry’s expertise which would allow us to provide it with documentation and management of all oil and gas covered assets domiciled in Guyana, documentation of all liabilities including specifics on limits, documentation and oversight of exposures, risk management concerns etc. We are also concerned that placements may have been made outside of the requirements of the Local Content Act and Insurance Act, or may have circumvented the intent and spirit thereof.”
The insurance bodies said that they have already furnished the local regulator with a comprehensive consortium proposal in conformity with the publicly stated preferred approach of the highest levels of Government of Guyana, while their appointed committee continues to meet with and represent its position to every relevant level of regulatory body and Government.
The industry said it is fully aware of the legal recourse available to rectify illegal breaches of our laws. “However, it is committed rather, to continue to place its faith in the integrity of the Government of Guyana and the Central Bank, to enforce the Laws of Guyana as it indeed is within its mandate…” The group said it remains faithful that the authorities will cause the restoration of the considerable loss of revenue suffered by the local industry as a result of the evident continued circumvention of the laws of Guyana; and to represent the interests of an industry which has served the nation faithfully from its very inception. The insurance group said it also anxiously awaits the passage of relevant legislation and regulation that would further streamline and strengthen the industry, and reinforce the requirements for oil and gas contractors to place business locally.
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