Dear Editor,
A letter appearing in the Kaieteur News, June 07, 2023, edition, from a Kevin Morgan, self-described as a former lawyer, petroleum programme – Government of Guyana, entitled, “Just some thoughts on Oil and Gas Insurance,” gives the local industry this opportunity to clarify certain inaccuracies and misconceptions therein. In his letter, Mr. Morgan unfortunately misguides the readership in many respects, notably, first, in describing the local insurance companies as “not able to provide the standard of service of the world’s leading player,” ExxonMobil; and secondly, in scanty dismissal of the role and importance of the insurance regulatory authority, and the governing insurance law. We are unaware of any scholarly or technical assessment that Mr. Morgan could have relied upon to arrive at his conclusion. Unless he is willing to direct us to the same, we would have to proceed on the assumption that his conclusion was based on his own ill-informed opinion. We would appreciate, therefore, that you publish this response in your esteemed newspaper so that we may set the record straight.
The capability of any company to provide professional insurance services could, appropriately, be assess-ed via three main criteria, namely Technical, Financial and Regulatory. Technical, meaning being able to supply the relevant skill and experience; Financial, meaning having the financial capacity to underwrite the risks; and Regulatory, meaning having passed the relevant assessment by the regulators, being licensed and regulated accordingly, and operating within the law. On the technical side, the local insurance industry prides itself on employing insurance professionals who meet the highest global standards in all key positions. Indeed, inhouse experience in Oil and Gas [O&G], like the whole of Guyana, would be new to our industry; however, the public would be happy to know that the local industry was among the first to train and certify its technical staff in O&G insurance as soon as possible after the oil discoveries were announced in 2015.
Amongst its training programmes were those conducted by none other than the world’s leading insurance brokerages, who were so satisfied therewith that they have indicated their full willingness to do business with us. With respect to financial capability, it would do the likes of Mr. Morgan well to understand that insurance is a risk transfer mechanism whereby persons pay a premium to transfer their risk of loss to the insurance company. The company spreads the risk among the many others whose premiums constitute an insurance pool. Thus, the probable loss of a few would be borne by the many who would not suffer similar losses. 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. 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 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.
We can safely state that the local industry, with over 700 years in total experience is quite capable of underwriting all the O&G risk currently emanating and expected from Guyana. To this end, our industry has already engaged prospective world leading reinsurers. It was an assessment of this capability that convinced the Government of Guyana [GOG] to rightfully provide in the Local Content Act 2021 [LCA] that the local insurance industry ought to receive 100 percent of all O&G insurance business. The regulatory environment involves the governing and oversight of the insurance industry, primarily for the protection of policyholders. 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, and not 1998 as quoted by Mr. Morgan.
The 2016 Insurance Act also protects the interests of this nation 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. Therefore, the appearance of a cover note issued by a U.K. broker, evidently unlicensed to operate in Guyana, during the judicial process of the case to which the writer refers, brings sharply into focus, what appears to be a circumvention of our laws. The Local Content Act provides a mechanism whereby the O&G insurance premiums, that are deductible as Cost Oil, would be remitted to the benefit of the local economy. The indigenous industry stands to earn from O&G insurance, premiums, reinsurance commissions and fees, and brokerage commissions. Added to this, the local industry stands capable and ready to advise the GOG on insurance and Risk Management matters regarding O&G.
Unfortunately, the local insurance industry has, so far, mostly been bypassed in providing the services that it is fully capable and prepared to do, for reasons that will partially be discussed herein. The local industry has much to bring to the table and is in fact an integral, underutilized part of the Government’s natural mechanism in negotiation of coverage and management and oversight of O&G risk. The local industry knows and understands the intricacies of insurance and should be playing an integral role on behalf of our government. We firmly believe 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 O&G 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 LCA and IA, or may have circumvented the intent and spirit thereof. Thus, we submit that:
The local industry is professional, capable and trained. It has for the entirety of its history always dealt extensively with the London Markets, Lloyds of London and international insurers and reinsurers worldwide.
Reinsurance gives the local industry all the required gross underwriting capacity to underwrite Oil & Gas risks, and provides for the industry the opportunity to earn reinsurance commissions when they reinsure; while the Local Content Act directed brokerage provides an income base for the indigenous brokerages.
The Local Content Act gives the industry 100% of all risks domiciled in Guyana and that includes all risks in Guyana’s territorial waters.
The Insurance Act requires that all insurance business in Guyana be insured with Insurers approved by the Bank of Guyana (BOG).
The international Oil & Gas insurance market has already affirmed its readiness to do business with the local industry; both insurers and brokers.
The combined local industry has long furnished the regulator with a comprehensive consortium proposal in conformity with the publicly stated preferred approach of the highest levels of Government of Guyana. The industry, by appointed committee, has and continues to respectfully meet with and represent its position to every relevant level of regulatory body and Government of which it is able. Our representative committee has left no stone unturned. The industry is not unaware that legal recourse is 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 is indeed is within its mandate; and to cause the restoration of the considerable loss of revenue (as is acknowledged by the writer) suffered by the 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 our nation faithfully from its very inception.
While currently nothing prevents locals from doing O&G insurance business, we also anxiously await the passage of relevant legislation and regulation that would further streamline and strengthen the industry, and reinforce the requirements for O&G contractors to place business locally. The industry reiterates its faith in the integrity of our Government and Office of the Commissioner of insurance and stands ready to serve the O&G industry.
Sincerely,
Melissa Desantos
President,
Insurance Association of Guyana
Peter Abdool
President,
The Guyana Insurance Brokers Association
