[Uganda] Insurance companies team up to tap into oil and gas sector
17 insurance companies have teamed up to pool their resources in an effort to cover risks in the oil and gas sector.
The pooling initiative, which began this year, aims at making local insurance players more capitalized to handle any risks in the oil and gas sector, according to insurance players.
Azim Tharani, an executive member of the Uganda Insurers Association (UIA), said insurers are ready to insure some of the activities in the oil and gas sector.
“We have formed a syndicate or what you can call a consortium to ensure that we are able to handle any risks in the sector. We understand the sector is risky and sometimes it can be hard for one insurer to handle. So, we are cooperating to see that premiums are not taken abroad,” he said.
He added: “Through the local ‘content policy,’ we have to be prepared. It would be bad to ask for local content yet we don’t have the capacity. This is also an opportunity to increase our penetration which currently stands at 0.85 per cent, the lowest in the region.”
“Once the oil sector takes off, we expect to see an investment of over $10 billion, and as insurers, we believe that we can collect over $100 million as premium income,” he said.
Deepak Pandey, the chairperson of UIA, said the resources from the oil and gas sector will spur the industry’s market growth development plan which intends to see insurance penetration grow to three per cent by 2025.
Tharani said insurers have signed a memorandum of understanding with a foreign consultant to guide the industry on how to underwrite risks in the oil and gas industry. The consultant, Total Risk Solution (TRS), is headquartered in Scotland.
Uganda has discovered about 6.5 billion barrels of oil, with the country targeting to produce its first barrel in 2020. Some of the oil wells are found in environmentally-sensitive areas such as game parks, making exploration and production a risky venture, especially towards the tourism potential of the country.
Also, Uganda is executing a number of infrastructure projects such as a crude oil export pipeline to Tanzania, which will run for 1,445km over different pieces of land. The security risk for such a long pipeline will be one of the main concerns for both countries.
Insurance companies will have to pay attention to these risks and see what kind of products they can design for the oil companies.