The Insurance Association of Guyana (IAG) and the Guyana Insurance Brokers Association (GIBA) say that the industry here has been bypassed in relation to oil and gas (O&G) services they are capable of providing.
In a letter published in the Stabroek News of June 12th both Presidents Melissa DeSantos of the IAG and Peter Abdool of GIBA said that the local industry has much to bring to the table and is 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, the letter stated, knows and understands the intricacies of insurance and should be playing an integral role on behalf of the 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.,” the letter said.
Both DeSantos and Abdool were responding to a letter, “Just some thoughts on Oil and Gas Insurance,” that appeared in the Kaieteur News, June 07 edition and which was authored by a Kevin Morgan, who was self-described as a former lawyer, petroleum programme – Government of Guyana.
Morgan was accused by DeSantos and Abdool of misguiding KN’s readership in describing the local insurance companies as “not able to provide the standard of service of the world’s leading player,” ExxonMobil; and secondly, a ‘scanty’ dismissal of the role and importance of the insurance regulatory authority, and the governing insurance law.
Providing a background to the operations of the insurance industry, DeSantos and Abdool asserted that, the capability of any company to provide professional insurance services could be assessed via three main criteria, namely Technical, Financial and Regulatory.
The letter in SN argued that the amongst the insurance training programmes were those conducted by the world’s leading insurance brokerages, who were so satisfied therewith that they have indicated their full willingness to do business with the Guyana insurance industry. With respect to financial capability, the letter stated 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 letter said that the small part of the risk that is actually retained by the insurer on their own account would, in the local case, be relatively small due to the size of the industry, but that in no way hampers the local industry from undertaking the largest risks via the reinsurance tool.
DeSantos and Abdool said, “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 …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 2016 Insurance Act, according to De Santos’ and Abdool’s letter, protects the interests of this nation and the insurance industry by strictly prohibiting the direct placement of insurance 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 Licence. The letter took note of the appearance of a cover note issued by a UK broker, evidently unlicensed to operate in Guyana, during the judicial process of a case in what appears to be a circumvention of the 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 Government of Guyana on insurance and Risk Manage-ment matters regarding O&G.
The insurance executives expressed concern that placements may have been made outside of the requirements of the LCA and Insurance Act, or may have circumvented its intent and spirit.
The letter went on to state that 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 letter said, adding that the industry is not unaware that legal recourse is available to rectify breaches of the laws. However, it said it is committed 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 suffered by the industry as a result of the evident continued circumvention of the laws of Guyana”.
