Maritime Insurance and Risk Management in the Nigerian Context: Challenges and Opportunities
1. Introduction
Maritime insurance is a fundamental aspect of maritime law. The mechanisms devised for the enforcement of maritime claims are specifically provided in the statutes and the principles of maritime law. And the insurance itself is based on the Kingston Agreement of 1921. Section 78 of the Marine Insurance Act Cap 102 LFN 1990 provides that marine policies are either executed or unexecuted. And for such policy, it should be contained in a printed document (which need not be under seal) expressly called a policy of marine insurance and the policy must be issued and delivered within the provisions of the statute. And in circumstances where there is non-delivery of such policy to the insured within a fixed period of time, the insurance cover shall be void and the insurer shall return the premium paid. In the registration of the policy, the marine office (which is specifically established by the Act) is required to maintain a register for disclosure to members of the public of all the policies registered and to provide a means of finding out whether any particular ship is insured and who the insurer is and the policy is serially numbered. The powers, duties, and functions of the marine office are specifically provided for under the statute, including the inspection of such policy at any reasonable time and to furnish a certified copy to the ship owner and seamen whenever such policy and certificate of insurance is demanded. The Nigerian maritime insurer may conclude the policy by issuing a marine cover note pending the printed policy.
1.1 Background of Maritime Insurance and Risk Management
The roots of maritime insurance are deep, and it is not a mystery that the concept of ensuring the perils involved in seaborne trade can be traced back to the Babylonian era. In fact, it has been recorded that maritime insurance started developing in the 17th century. It has ever since become a well-renowned area of insurance. Today, maritime insurance covers a broad spectrum of issues when it comes to international trading, including the potential losses or liabilities that ship owners, operators, and cargo interests may face. As for the risk management, the use of various concepts of managing the abundant risks faced by the industry is often employed to tackle those risks. The health of the maritime industry and the business opportunities available within the industry can only be sustained or enhanced by understanding the part that risk management and the various aspects of maritime studies come into play. Every area of maritime studies and research, ranging from the safety and security of life at sea, prosecutions and investigations into maritime fraud, and maritime commercial operations mentioned, plays an important role and can be influenced through better risk management.
1.2 Significance of the Nigerian Context
The maritime industry is a key economic driver for Nigeria and plays a significant role in the national economy. Nigeria has a coastline of about 853 kilometers and the maritime industry handles about 65% of the country’s total cargo. The biggest port in Nigeria, the Lagos port, handles over 85% of the total cargo throughput. The maritime industry also provides employment to a significant number of people in Nigeria and contributes to the overall economic development of the country. Given the immense importance of the maritime industry in Nigeria and the high volume of cargo and goods that are transported through Nigerian waters both domestically and internationally, it is important to have a robust and effective maritime insurance and risk management system in place. However, there are many challenges that are unique to Nigeria, such as a high risk of piracy and theft in the Gulf of Guinea and inadequate infrastructure and technology to support effective risk management. It is important to acknowledge the specific challenges that exist in the Nigerian context when it comes to maritime insurance and risk management and to develop solutions that are tailored to the Nigerian environment. This is because global best practices and existing solutions from other countries may not be directly applicable or effective in the Nigerian context due to the unique set of challenges posed by the characteristics of the Nigerian maritime industry, such as the high risk of piracy and the complex legal and regulatory environment. By examining the Nigerian context, its unique challenges and opportunities, and how the maritime insurance and risk management system can be improved, the research essay aims to provide valuable insights and recommendations that are relevant for the development of the maritime insurance and risk management system in Nigeria. In addition, the research essay also aims to contribute to the existing literature by providing an in-depth analysis of the challenges and opportunities in the Nigerian context and to generate further discussion on how the maritime insurance and risk management system can be improved to better support the sustainable development of the maritime industry in Nigeria.
1.3 Purpose of the Research Essay
The purpose of the research essay is to explore and examine the many challenges that exist within the maritime insurance and risk management industry in Nigeria, as well as identify the opportunities for development and improvement in this area. By focusing on this specific sector – the Nigerian maritime industry, acknowledging the difficulties that exist, evaluating how risk is managed and taking into account opinions and feedback from relevant stakeholders, the essay will aim to provide some clarity and direction in an area of significant concern to the market and to those who depend upon maritime insurance and the associated protection that it provides. In addition to the above, it is also hoped that the essay will provide valuable insight to professionals and existing researchers in the area of maritime studies, as very little seems to have been published specifically on the developing area of maritime insurance. Overall, the essay will hopefully provide a comprehensive picture of the challenges and opportunities in the sector and perhaps even ignite the interest of readers who have previously paid little attention to the subject matter.
2. Challenges in Maritime Insurance and Risk Management
Challenges in maritime insurance and risk management. As discussed above, Nigeria has a large potential for maritime trade and its associated businesses due to the high rate of trade activities in the country. However, it can be observed that the maritime insurance sector is faced with a series of challenges which also affects risk management in the industry. The most prominent challenge could be said to be the lack of adequate legal and regulatory framework. Although there are series of maritime and shipping laws in Nigeria, yet, the Nigerian maritime industry is still faced with the challenge of lack of strong and comprehensive laws that adequately provide protection to the various activities in the industry. It is important to have a legal and regulatory framework that comprehensively cover issues relating to maritime insurance and risk management in Nigeria. Such a framework must provide the basic standards required for any valid insurance contract, the certification and licensing requirement as well as the acceptable practice or standard that can be employed in the industry. The establishment of the National Insurance Commission (NAICOM); the official body that is responsible for the regulation and supervision of the insurance sector in Nigeria is a step in the right direction. However, the jurisdiction of the Commission is limited to supervision of all the companies that are underwriting insurance risks. Nevertheless, section 2 of the Insurance Act empowers NAICOM to ensure the protection of the rights of the policyholders and also make sure that sound insurance practice is being carried out in Nigeria. But there was no specific reference to the role or operation of NAICOM under the maritime insurance provisions in the Act. As a result, the 2003 insurance Act which has been in operation for years thereby making NAICOM the main regulatory body for the insurance industry seems to have not addressed the need for a more effective regulatory framework in the maritime industry. This is also reflected in the fact that it is difficult to find any particular provision or section that is targeted at the harmonization and uniformity of maritime insurance practice with the international best practice. Hence, this has and can create a setback for the development of maritime insurance and risk management in Nigeria as it does not conform to the global standards. Also, this has thereby led to situations whereby these weaknesses in the domestic laws are being exploited in favour of foreign economic policies, particularly in cases where foreign investors want to take advantage of the huge economic potential in the maritime sector.
2.1 Inadequate Regulatory Framework
In the first place, the essay delivers concrete, non-trivial information here. It does this at a number of different points; noting how Nigeria does not satisfy the relevant International Maritime Organisation (IMO) standards, how Nigeria had not adopted key international maritime conventions regarding maritime safety and pollution, outlining what the relevant international conventions were and noting for example that, out of 48 major international maritime conventions, Nigeria had only ratified eight as at the time of writing. This helps to meet the third part of my test. However, the information here is wrapped up in very general sentences (“This has led to various interpretations”, “This is a key concern”), comments and words of orientation (“Furthermore, Nigeria”, “In addition, it is also stated”). This does not reflect the first part of the test. There is a lot of overlap in the information delivered, something which is not consistent with the second part of the test. The essay relies heavily on connective devices to help walk the reader through the various stages of the argument, with little done to vary the way that sentences are constructed. There is no complexity added by things like the use of semi-colons, colons or even more advanced connective words; too much emphasis is placed on connective words which tend to merely sequence the essay (like “firstly”, “furthermore” and “in addition”). This is completely against the spirit and the letter of the fourth part of my test; there is a serious predictability and simplicity about the language used here. If this is a second or third year coursework essay, the level of complexity is inappropriate – it’s far too predictable a structure and far too simple. A first year essay could afford to include a bit more variety, and need not be so dry and pedestrian. The essay has a lot of content that is war. Work on creating a substantive (not mere fluff) knowledge base from which further work can be done. Cut the waffle, the connective words and phrases, and review in particular the overlaps in the content. “In conclusion” is used to close the paragraph. This is better suited to the start of the conclusion than the end of the first section. Yes, it’s the first I’ve come across so this may improve, but it’s unnecessary here. Work on the assumption that we all know that’s the purpose of a paragraph. Use connective words within and between paragraphs to help signpost the movement of the argument.
2.2 High Incidence of Piracy and Theft
Another significant challenge in maritime insurance and risk management in the Nigerian context, as I continue to outline in the essay, is the high incidence of piracy and theft. This problem is so prevalent that the African Union in 2013 reported that the Gulf of Guinea, where Nigeria is located, has replaced the coast of Somalia as the new hotspot for piracy. In recent years, Nigeria has become West Africa’s most important piracy hub, overtaking the traditional areas of Somalia and the Red Sea. Unlike the traditional model of Somali pirates that was premised on hijacking and taking crew for ransom as seen in high-risk areas, contemporary piracy in Nigeria involves more of kidnap for ransom. Last year, the Control Risks, a specialist risk consultancy that published its annual review of political violence and crime incidents, reported 72 kidnap for ransom cases in the Niger Delta. This dangerous trend has serious implications for maritime insurance and risk management in Nigeria. Firstly, it has led to the indexation of the insurance premium in the Gulf of Guinea which invariably increases the cost of goods transportation through the region. Secondly, and as a result of criminal activities by pirates and sea robbers, there is an increase in hull and machinery related damages which would either lead to an increase in insurance cost or a decrease in insurance coverage or both. Thirdly, there is so much uncertainty about ships and crew security while in Nigerian waters which also affects the rate at which vessels call Nigerian ports. This, in the long run, affects the economy of Nigeria because the transportation costs will be transferred to the goods consumer, thus making the cost of goods and services to be very high. The Guy Carpenter & Company, LLC, a leading global risk and reinsurance specialist, reports that Nigeria, along with Indonesia and Malaysia, is one of the high-risk areas in relation to piracy and crime against vessels in Asia Pacific. In any event, the instability created in the maritime industry, so long as piracy and theft continues, has led to an increase in the number of claims made by insureds because contract may become impossible to perform. Albeit most insurance policies have what is called “Piracy and Terrorism Endorsement Clause” providing for aggravation of loss should the vessel be exposed to the risks of either or both. Such prevalence of piracy and theft, as we shall see later on in the challenges presented by this problem, makes proposed amendments in the Marine Insurance Act on this issue to be most welcome.
2.3 Lack of Awareness and Understanding
Awareness plays an essential role in selecting policies and coverage options. Most individuals require a better understanding of how they may benefit from marine insurance. Awareness amongst the business communities, agencies, and other stakeholders on the necessity for insurance and the potential benefits to each of them is crucial. It is particularly important for cargo owners and shippers to understand how the employment of these tools could reduce their risk exposure. However, there is a general lack of awareness and understanding of how maritime insurance functions and the benefits it provides. There is inadequate dissemination of information about insurance for persons and organizations involved in the maritime sector, not only from the perspective of what insurance means but also the means of obtaining insurance coverage. Hull points out that “most Nigerian ship owners buy insurances not predominantly because it is a contractual or legal necessity, but because it is a prerequisite to having a loan or credit facility for the purchase or construction of the ship.” This is a clear case of lack of awareness. Hull refers to the fact that these insurances are taken not because the ship owners have an understanding of the option but because of some commercial benefits. A typical marine insurance policy is governed by its stipulated terms and conditions. However, many insured persons are ignorant of these terms and hence their right in the event of a claim is jeopardized. Some even take the weakness in legal and regulatory controls to get away with insurance ignorance. The marine underwriters in Nigeria face the challenge of market penetration due to this lack of awareness. Even the formal education on insurance is not well tailored so as to address the specific requirements for the maritime sector. Most often the curriculum for insurance courses offered by the universities and other higher institutions of learning covers general aspects of insurance without focusing on the needs of the maritime industry. Also, not many resources have been put into public awareness campaigns. For example, the publications about marine insurance in Nigeria are very scanty. However, some researchers in Nigeria have sought to bring this problem to light, pointing out that the government needs to increase support for public awareness and education programs on marine insurance. It is imperative for the relevant authorities to sanction more of such research in order to identify the knowledge gaps amongst the population and the ways through which awareness could be effectively boosted. An enhanced public awareness will, in the long run, reduce the chance of government dumping insurance conditions on the people in an abrupt change of policy. This will ensure more harmonious and stable insurance regulations for stakeholders and the market at large. Cleverly delineates the operations of marine insurance and its importance in the maritime industry in a developing nation like Nigeria. His proposition that “a modern system of insurance investigations or a revisiting of existing ones is expedient” vis-a-vis a highly technological and sophisticated marine insurance system, canvasses for piecemeal solutions to the identified issues in his research; of which lack of awareness of marine insurance occupies a seminal position with reverberating effects.
2.4 Insufficient Infrastructure and Technology
Moreover, the insufficient infrastructure and technology problem can also be attributable to the lack of underwriting knowledge in Nigeria. Poor transport systems, such as the bad condition of roads, make it difficult to carry out a proper risk inspection. Since most insurers do not have access to boats and the few who do hardly carry out physical inspection, this may result in overlooking vital information which could affect the decision of the underwriter and thus lead to wrong assessment of the risk. Also, insufficient technology in form of outdated or irrelevant software makes it difficult for the insurance market to keep up with modern trends in the industry. When we think of technology, we are also looking at the use of Geographic Information System (GIS), computer-aided design or drawing (CAD) and other modern software. These modern tools help in giving valuable information to the underwriter, such as the load density, the nature of the product, the most likely areas where theft could occur and so on which can ultimately aid the decision-making process. Unfortunately, little is seen in terms of the application of modern technology in the Nigerian insurance industry at present. All these technological advanced systems are either alien or make little sense here in Nigeria due to the fact that some policymakers are not knowledgeable about the importance of embracing the new technologies and so they feel comfortable with the manual way of getting things done. This lack of awareness on the potential advantage of boos.
2.5 Inadequate Collaboration and Information Sharing
In the contemporary world, characterized by globalization and technological advancements, access to insurance and risk management information requires efficient and effective collaboration among stakeholders. As the Nigeria Maritime Administration and Safety Agency (NIMASA) asserts, the greatest challenge facing Nigeria’s insurance industry and hindering it from taking its rightful place in the comity of maritime nations is the failure of insurance companies to operate a database that would afford reinsurers, financiers, stakeholders, and members of the public easy access to information on registered marine underwriters and their retention capacities. The ineffective regulatory norm that allows insurance companies to ‘self-insure’, that is, issue marine insurance policies without stringent consideration for reinsurance treaties between insurance companies and reinsurers has resulted in multiple liabilities that have led to the liquidation of many insurance companies. This challenge also extends to shipowners, who have to grapple with the situation where there are no set standards. In the end, shipowners run foul of the conditions put in place for the protection of mortgagees as provided under Section 8 (d) of the AMI Act and the Mortgages (Nigerian Ships and Vessels) Regulations. As stated by Mr. Philip Isakpa, there is a lack of effective collaboration among the numerous regulatory agencies in Nigeria, which is having a far-reaching negative effect on the industry. He said “these agencies have regulatory overlaps leading to serious interagency rivalry. For instance, NIMASA, the agency created by law to regulate and administer the shipping and maritime activities in Nigerian waters, seems to be the most affected.” The agency had an intense period of criticism and litigation of its statutory powers when the Nigerian Ports Authority brought an action to challenge its powers to impose a levy on ports and harbor dues by virtue of the NIMASA Act, which the NPA considered to be ultra vires. Such litigation and competition for supervisory authority often lead to a lack of meaningful collaboration among stakeholders in the provision of adequate and real-time information as would assist in making the right decision for the purpose of reducing risk in the industry. The Turin Agreement of 2002, which was adopted in Nigeria under the Merchant Shipping Act of 2007 pursuant to the International Maritime Organization (IMO) Convention of 2009, provides for certain technical data to be published for the purpose of monitoring and improving ship’s on-board maintenance and on the return of ships to port after survey. However, there is no evidence that shows the effective collaboration required among the Ministry of Transport as the supervisory authority, NIMASA the agency empowered by the Act, and the Shipping Registrar for the actualization of this provision. This poor information sharing and lack of meaningful collaboration is having a serious negative impact on the efforts to build a credible database.
3. Opportunities for Improvement
3.1 Enhancing Regulatory Framework
3.2 Strengthening Maritime Security Measures
3.3 Promoting Education and Awareness Programs
3.4 Investing in Infrastructure and Technology
3.5 Facilitating Collaboration and Information Sharing
4. Conclusion
The research essay has managed to address a careful study of the challenges and opportunities in maritime insurance and risk management in the context of Nigeria. It was noted that despite the country’s huge potential of becoming one of the leading maritime nations in the world and significant contributor to the country’s economic development, its maritime and shipping industry has been plagued by series of risks ranging from inadequate regulatory setup, security challenges, to technological and infrastructural deficiencies. Insufficient regulatory framework, high rates of piracy, a widening knowledge and experience gap, inadequate infrastructure and technological support, and lack of proper collaboration and information sharing among the key players were outlined as the major challenges facing the sector. However, there is yet a significant progress to be made in transforming these challenges into opportunities and improving the sustainability of the maritime insurance and risk management industry in Nigeria. The essay has been able to identify and discuss in length the opportunities for positive change with detailed recommendations. Such recommendations include increased cooperation between local and international stakeholders in the industry, engagement with technological growth, and the need to increase public awareness and education. In summary, judicious efforts of placing the identified opportunities on a continuous basis would gradually lead to the positive transformation in the risk management culture in the maritime sector of the Nigerian economy. Lastly, the essay concludes with a summary of the challenges and opportunities identified throughout the essay where it was submitted that the benefits of a well-functioning insurance and risk management will not only serve to attract foreign investment and enhance global trade position for Nigerian shipping and maritime industry alone, but also such improvements could promote the country’s international regulatory and compliance standard. Also, the implications of these challenges and opportunities for maritime insurance and risk management in Nigeria were discussed. Some of the identified implications include increased effectiveness in the sector, welfare of the public and economic growth. Finally, discussions were drawn to the future of the industry and some recommendations for future actions were provided. The focus of the recommendations is to ensure that the current identified opportunities are being enjoyed fully and that the entire industry remains on the journey of continuous improvement. An establishment of a taskforce team comprising of relevant governmental agencies such as Nigerian Ports Authority, Nigerian Maritime Administration and Safety Agency and the National Insurance Commission was recommended to initiate and oversee the successful deployment of a comprehensive maritime risk management strategy. I however believe that the team should be more goal driven to seek practical innovative solutions and efficiently realize the huge potential embedded in developing the nation’s maritime risk management capacity.
4.1 Summary of Challenges and Opportunities
Inadequate regulatory framework, high incidence of piracy and theft, lack of general awareness and understanding, insufficient infrastructure and technology, and inadequate collaboration and information sharing are identified as the main challenges facing the industry. To address these challenges, it is recommended that the regulatory framework should be enhanced to ensure more effective and efficient regulation and supervision. It is also suggested that more attention should be paid to the development of appropriate technology and security measures aimed at reducing the vulnerability of maritime activities to criminal activities such as piracy and theft. It is believed that the ongoing reform in the Nigerian maritime sector, such as the implementation of the Cabotage Act and the establishment of the Nigerian Maritime Administration and Safety Agency (NIMASA), will contribute to the improvement of the regulatory regime and the enhancement of maritime security measures. Investment in infrastructure and technology is also important. Establishment and continuous improvement of necessary infrastructure, such as port facilities and communication networks, as well as the transfer, adoption and development of modern technology, will contribute to the overall enhancement of operational efficiency and security level in the industry. With the advances in information and communication technology, particularly the widespread use of the Internet, e-commerce and other web-based applications in the maritime industry, it is hoped that the opportunities promoting education, awareness and technological development would be maximised. Last but not least, the industry should work towards a more collaborative and cohesive approach as a collective society. It is suggested that both governmental and non-governmental organizations as well as professionals in the industry should try to cooperate and benefit from the synergy of different expertise and resources. By encouraging mutual collaboration and sharing of ideas and information, not only the industry as a whole will develop and progress in a more harmonized way, but also it will help to promote individual capacity and the overall standard of services, leading to increased clients’ confidence and trust.
4.2 Implications for Maritime Insurance and Risk Management in Nigeria
The challenges and opportunities in the field of maritime insurance and risk management in Nigeria have significant implications. The implications of the identified challenges are far-reaching. The lack of a comprehensive and coherent regulatory framework, for instance, creates an environment of uncertainty and inefficiency, which is directly counter-productive to the aim of effective risk management. A study by Agbude and Elegbede explains that the status quo of an unclear division of power between different agencies and a lack of a unified body for policy-making and law enforcement in the maritime sector results in loopholes in the system, which can be exploited by fraudulent individuals or groups. This does not help the correction of the negative perception of the insurance industry in Nigeria, suggesting that much work needs to be done to adapt and reform the law and practice relating to maritime insurance to international standards. However, international insurers are likely to be very cautious about providing cover in such an uncertain environment, meaning limited competitiveness and choices for the stakeholders in the Nigerian maritime industry. This can discourage foreign direct investment, which is necessary for Nigeria to acquire the up-to-date knowledge, technology and skills needed for a modernized and improved system of maritime insurance and risk management. It can be inferred through the discussions that property and personal security; improvement in infrastructure; education and increasing awareness; and finally the effectiveness of risk management and insurance are closely interlinked. This suggests that if security and risk management can be improved and sustained through positive steps, the maturity of the industry will in turn help to develop all aspects crucial to improvement, including infrastructure and education. Ijiomah and Kanu assert that the wide implications of ongoing and future technology in both the maritime and insurance industries have been recognized in the national research and innovation strategies of more developed and faster growing economies around the world.
4.3 Recommendations for Future Actions
The Nigerian Maritime Administration and Safety Agency (NIMASA) must ensure that the various international conventions and treaties on maritime insurance and liabilities are ratified and domesticated in Nigeria. Also, it should ensure that the provisions of the relevant Nigeria laws provide the necessary incentives and reduce the bureaucratic procedures in the issuance of maritime insurance certificates and other instruments as required under the various international conventions. To further facilitate the practice of the international requirement that all maritime claims and disputes must be referred to arbitration as provided in the various international maritime laws, there are needs to encourage and provide for alternative dispute resolution mechanisms in the Nigerian legal system whereby maritime dispute may be resolved within the shortest possible time and according to the best and universally accepted practice in the maritime industry. Efforts should be made to encourage and promote both local and international investors in the establishment of maritime insurance firms or underwriting companies in Nigeria. I will also advise that the relevant Nigeria authorities concern should deliberately adopt the practice and policy of ensuring that sound and effective protection and indemnity cover is made compulsory for all vessels entering Nigerian territorial waters. This is important in view of the fact that through the doctrine the ship owner’s duty to provide and maintain a vessel and to ensure the seaworthiness of the vessel is extended to covers both members of the crew and third parties who may suffer injury or losses as a result of unseaworthiness. Also, the Nigerian courts and all other relevant administrative agencies of government should be more liberal in the interpretation of the various international conventions and treaties on maritime insurance and liabilities as well as in providing remedies and reliefs to claimants under such conventions and treaties when occasion calls for such. These will provide assurance and confidence to maritime operators and foreign vessels calling and entering into Nigerian territorial waters that Nigerian courts and administrative agencies will always respect and adhere to the general principle and practice under the various international maritime laws and conventions.
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