Insurers Turn to Capacity Building to Tap into the Oil and Gas Industry

28th, Aug 2024 Share This

With Uganda’s Oil and Gas Industry entering a critical development phase, particularly in the upstream operations, the Insurance Consortium on Oil and Gas Uganda (ICOGU) is now focusing on strategic capacity building to grow premiums.

According to Jonan Kisakye, CEO of the Uganda Insurers Association, the oil and gas sector is relatively new in Uganda, and the risks associated with it are substantial.

"The sector poses significant risks that could expose the insurance industry to huge losses if the players lack adequate knowledge to insure these complex operations," Kisakye explained.

In the oil-rich Bunyoro region, where developments are intensifying in the CNOOC-operated Kingfisher field and TOTAL’s Tilenga Area, the need for robust insurance coverage is becoming increasingly evident.

Projects such as the East African Crude Oil Pipeline (EACOP), currently in the Engineering, Procurement, and Construction (EPC) phase, and the refinery project pending a Final Investment Decision (FID) with UAE’s Alpha MBM Investments LLC, are high-risk endeavors requiring specialized insurance solutions.

Ibrahim Lubega Kaddunabbi, CEO of the Insurance Regulatory Authority, expressed satisfaction with the rising insurance premiums in the sector.

"I am pleased to report that regulations mandate all International Oil Marketing Companies (IOCs) to source insurance locally. To strengthen our industry, sector players have formed a consortium to approach these insurance needs jointly," Kaddunabbi said during a recent insurance training session in Kampala.

While the sector recorded premiums of up to $13 million in 2023 from a total investment of USD 20 million, the Consortium's leadership emphasizes that building sector-specific skills is more crucial than simply retaining premiums.

Kisakye stressed the importance of expertise, particularly in handling large-scale projects.

"Consider the EACOP, a $4 billion project insuring it alone would greatly expose the balance sheet of any individual insurer. It's vital that we equip ourselves with the necessary skills to insure the IOCs effectively," Kisakye noted.

Insurers have also observed a significant rise in microinsurance, reflecting increased appreciation of insurance services within the business community.

"Total premiums in microinsurance used to be less than 500 million shillings annually, but in just the first six months of 2024, we've already written 500 million shillings in premiums. This represents about 0.6% of total non-life insurance premiums, which is encouraging," Kaddunabbi added.

Experts highlight that the insurance sector, which contributes approximately 530 billion shillings in taxes and employs more than 1,500 people, is poised for further growth as more businesses in the oil and gas industry and beyond take up insurance services.

Source: The New Vision (click here to view)

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