Specialist insurance market, Lloyd’s of London, has issued a warning to Nigerian airline operators that it may be forced to blacklist or downgrade them over their continued failure to fulfill their obligations of paying premiums regularly. This was made known by Lloyd’s representatives who visited Nigeria recently.
According to the representatives, the Nigerian market is a high-risk market, the volume of business from it has been small and the airline operators are not paying their premiums. Based on this, Lloyd’s might have no other choice than to blacklist the country and that the decision might have far-reaching consequences for the aviation industry and the country at large.
Why did Nigeria default in making payments?
According to the Chairman of Airline Operators of Nigeria, Capt. Nogie Meggison, indigenous airlines could not pay the premiums due to forex constraints. It would be recalled that a few months ago Iberia Airline and United Airlines announced their exit from the country, while Emirates Airline announced that it was reducing its flight frequency to Nigeria because of unfavorable economic conditions. As of June 2016, these airlines could not access foreign currency to repatriate their revenue with more than $600 million in air ticket sales blocked by the country’s chronic lack of foreign currency.
Should Nigerians be scared about the threat by Lloyld?
Capt Nogie Meggison said that Lloyd’s market accounts for about 92 per cent of reinsurance of airlines globally; with the Russian market Cyprus and others boasting of five per cent by Russian market, while a meager two percent is retained locally.
He said, “The Nigerian market is grossly unable to effectively underwrite risks in aviation because of the high exposure of an average of $500m for just one airplane to cover hull, war and third party liability. When you multiply this figure by the number of aircraft operating in the country, it becomes clear that Nigerian insurance companies can’t cope considering the enormous volume of resources needed to cover all those aircraft of which the total coverage value will be in excess of $6bn.
“Virtually 100 per cent of the aircraft being operated in Nigeria are re-insured in the Lloyd’s market. Hence, Nigeria can’t afford to be blacklisted as a nation because this will have very grave and deleterious consequences, as the entire domestic airlines will shut down, since airplanes can’t be operated without being insured.”
He said it would take some days at best to switch to the secondary market of Russia and China, whose premiums would also have skyrocketed if Lloyd’s blacklisted Nigeria.
Meggison added, “a blacklist will certainly have a negative impact on the Nigerian economy arising from the inability to acquire aircraft from lessors with no insurance, total suspension of operations by airline charter and oil support helicopters, job losses, and other sectors being reinsured by Lloyd’s market such as oil rigs, vessels, high rise buildings, airports and terminal buildings etc.
“Similarly, a downgrade or outright blacklist will mean very high premiums due to high risk levels.”
He added that if the country were blacklisted, the premiums would rise by about 300 per cent due to the high risks.
“We are not keeping to payment dates. Domestic carriers have a four-month backlog on payment. It will be funny to wait until there is an incident before the airlines try to pay their premiums,” Meggison said.
The way forward
Meggison urged the Minister of State for Aviation, Senator Hadi Sirika, to, as a matter of urgency, come to the aid of domestic airlines by forging a joint working group with the Federal Ministry of Finance and the Central Bank of Nigeria to brainstorm on how the nation could take steps to forestall a potential backlash on the Nigerian economy.