There are strong indications that the local insurers that insured the ill-fated Dana aircraft which crashed at Iju-Ishaga on Sunday, June 3, 2012, may have to pay compensation to families of the victims based on moral suasion.
This development, according to Financial Vanguard’s findings, is hinged on the fact that the local lead underwriter is yet to remit the full portion of the premium that is due to the co-insurers. Consequently, as the battle to revamp the negative perception which has plagued the insurance sector rages on, the affected insurers are being persuaded to pay the Dana claims obligation based on moral grounds.
Dana Airline and insurance companies, both local and foreign, agreed at a premium of $1,448,206, an equivalent of N225.92million for the insurance of Dana fleet of aircrafts. The deal which was brokered by Aon Plc saw Lloyds of London taking 70 per cent of the risk which amounts to N158.14million ($1,013, 745) while 30per cent of N67.78million was retained in the local market. For the local market, Prestige Assurance Plc was the lead insurer with 8 per cent of the risk. Leadway Assurance got 7 per cent, NEM Insurance had 5 per cent, Sterling Assurance got 3 per cent; Continental Reinsurance got 3 per cent, Aiico had 2 per cent while Standard Alliance got 2 per cent.
The premium, according to Financial Vanguard’s investigations, was paid to Prestige Assurance which remitted the 70 per cent of it to Lloyds but is yet to remit the full 30 per cent premium of N67.78 million to the local co-insurers which is currently raising dust as to the legality of honouring the claims made on them as a result of the Dana air crash.
Prestige Assurance Managing Director, Dr. Anand Prakash Mittal, who spoke to Financial Vanguard on phone Friday, said that the Dana insurance account is a combination of many risks and is still an on going account. According to him, “The Dana insurance account is an on going one and the year has not ended. But for whatever it takes, we are going to pay compensation to all the victims” No matter what anybody says or the rumour making rounds we are not perturbed. What we are sure of is that compensation will be paid” There are so many risks in the Dana insurance Account and is still an ongoing account more so, the insurance year has not ended” He declined to be categorical on the premium remittance to co-insurers, insisting that compensation would be paid no matter what.
Financial Vanguard findings further revealed that Dana Airline had reached an agreement with all the insurers involved to pay the total premium on four installments as follow: the first installment on 13th February, 2012; second installment on 13th of May; third installment on 13th of August and the forth and last installment on 13th of November, 2012. The airline had just paid the second installment when calamity struck. Some of the co-insurers which have their names enlisted in the account are yet to sign the contract agreement with the lead insurer before the disaster happened that fateful day.
Insurers said that the Combined Single Limits is estimated at $350 million (N55.3 billion). A combined Single Limit, CSL, coverage is a combination of public liability and passenger liability coverage into a single coverage with a single overall limit per accident. This type of coverage provides more flexibility in paying claims for liability, especially if passengers are injured, but little damage is done to third party property on the ground.
Lloyds of London, having received its premium as agreed, accepted that it would pay adequate compensation to the families of the victims of the crashed plane. Financial Vanguard learnt that international loss adjusters who arrived the country four days after the ill fated crash had released preliminary report and recommended initial claims payment of $7.5million (N1.19 billion) on the Dana mishap. Mr. Yomi Oshinkoya of Lloyds stated at a joint news conference addressed by officials of the Lagos State government and Dana Airline that compensations would be paid to the victims’ families according to aviation standards, adding that people should not be afraid that the accident occurred in Nigeria. He assured all the families of the victims that the airline was well insured and would live up to its liability bidding in this regard. He said that the compensation would be for the passenger families and those on the ground.
However, the local front is undergoing some controversies on the ground that their own part of the deal has not been fully met. Vanguard however gathered that the National Insurance Commission, NAICOM, has after its meetings with the seven co-insurers been mounting pressure on the underwriters to save the image of the industry by settling the claims even when the insurance companies are yet to decide on whether to pay or not.
NAICOM had summoned the seven local insurance companies to an emergency meeting to discuss their plans on how and when to pay claims to the families of the victims. NAICOM had even initiated collaborative moves between it and the Nigerian Civil Aviation Authority, NCAA, which gave birth to the establishment of NCAA/NAICOM Committee on Aviation Insurance.
Commissioner for Insurance, Mr. Fola Daniel, said that the committee had since been actively serving as a forum for exchange of ideas and for articulating solutions to overcoming challenges regarding aviation insurance in Nigeria.
For some stakeholders in the insurance sector, the image of the sector is at stake once again and all eyes are on insurers to see how the issue is resolved. Although it is agreed that the management of Dana Airline has some issues to contend with, these stakeholders are of the opinion that insurers should rally round to settle the claims so as not to further rubbish the image of the sector.
President of the Chartered Insurance Institute of Nigeria, CIIN, Mr. Wole Adetimehin, told Financial Vanguard that insurance operators should rally round one another to quickly pay out the compensation to families of the victims of the Dana air crash. Adetimehin said that the move is necessary to ensure that all hopes are not lost to the families of the victims of the disaster.
Adetimehin, however, stated that the lead insurer involved is fully responsible for 100 per cent of the risk whether premium was transferred to co-insurers or not and is liable to pay compensation.
Adetimehin said “I want to allay the fears of the Nigerian public because the issue raised is highly technical. 70 per cent of the premium has been sorted out remaining the 30 per cent payable by local underwriters. The lead insurer is wholly responsible for 100 per cent of the risks and as such they are liable to pay.”
Decrying the attitude of Nigerians towards insurance, Adetimehin said, “Quite a lot of losses are not insured because of our very low appreciation of the field of insurance and that is why we are all out there talking to governors, local government chairmen and the National Assembly that we should all join hands and get people to embrace insurance. I think it is the best decision anybody can make and gone are those days when you say underwriters are always very anxious to collect premium but when mishap happens, they don’t pay. I am in a position to confirm and assert that gone are those days, it doesn’t happen again. In most cases, we even come out to pay when we are not supposed to pay just to build our image and the reputation in the market. Out there in the developed world, they say no. You can’t approach any insurer for any ex-gratia when you have not played your own part. But here, because of our peculiarity, we are often coming out to pay even when there is no basis.”
Adetimehin continued, “In developed countries, nobody will come and plead for out of grace payment or whatever because the leading underwriter would have known that that would be for his own account. Strict interpretation of the policy terms is always applied. But here in Nigeria, we have always been there not to embarrass our national government. Hence, in the interest of our insuring populace, we end up paying claims where premiums were not paid.”
Managing Director of Crystalife Assurance Plc, Mrs. Oluseyi Ifaturoti, said that with the developments emanating from the Dana crash, the importance of paying premium promptly becomes imperative.
She said “How do you explain it, a man sitting in his own house and did not go to the airport or anywhere or even plan to enter an aircraft and he suffered loss as a result of an air crash. So it just goes to show that you cannot sit down and totally imagine where a disaster can happen from. We believe that we are a praying nation, and we continue to pray, but we should also make sure that we have the adequate insurance to take care of the financial stress even if you cannot handle the emotional aspect because when the financial stress is taken care of, it also reduces the emotional stress.”
For Commissioner for Insurance the challenges in the aviation insurance include inadequate insurance for ground handling equipments, insufficient third party insurance, absence of comprehensive list of aircraft operated by commercial and non-commercial operators, dearth of personnel with sufficient expertise for ensuring compliance and general lack of public awareness for insurance.
Daniel expressed hope that the need for a legal framework for aviation insurance, how to ensure full insurance coverage for aviation risk, role of NAICOM and NCAA in enforcement, case of compulsory third party liability and aviation claims would be clearly laid out with the collaboration of the two regulators.
According to him, no single insurer has the resources to retain a risk the size of a major airline or even a substantial proportion of such risk, adding that the catastrophic nature of aviation insurance can be measured in the number of losses that have cost insurers hundreds of millions of dollars.
He stated that it is saddening that when there are accidents losses, it becomes contentious as dependants of victims of air crashes do not get compensated as a result of inadequate cover.
He admitted that travelers in Nigeria today only fly with faith; hoping that they will arrive at their destinations safely and where they do not, some good Samaritans would take good care of their dependants.
“It is most appalling that insurance and aviation has been cast in bad light and this should not continue. It is high time we ask our self whether we did what was ethical to avoid those crashes.”
He confessed to the fact that the commission is aware of the constraints for large risks like aviation risks, adding that the laws allow insurance companies to form consortia and where this is still inadequate, the uninsured portion of the risks is ceded abroad.
“An insurer’s capacity for aviation insurance policies shall be the net retention for that insurer plus its reinsurance treaty capacity and where reinsurance capacity is provided by a foreign reinsurer, it shall be with a company having a minimum financial strength ratings (FSR) of “A-” Standard and Poor’s (S&P) or “A” A.M.Best.”
On the way forward, he stated that NAICOM as regulator of insurance institutions in Nigeria is ensuring that insurance businesses are conducted with sound principles and has placed a very high premium on corporate governance within the industry.
More so, Director of Airworthiness, Nigerian Civil Aviation Authority, Mr. Patrick Ekunwe, stated at a seminar that the importance of insurance must be emphasised, considering the air crashes that have occurred in the past.
“Compensation of the victims’ relatives became a serious issue as some of the airlines could not settle the families of the victims on time with the mandatory liability limit of $100.000 as compensation as stipulated in Chapter III of the Schedule to the Civil Aviation Act of 2006, which domesticated the Montreal Convention.”
“The Montreal Convention of 1999; the Convention for the unification of Certain Rules for International Carriage by Air, which specifies a liability limit of $100,000 Special Drawing Rights supersedes the Warsaw Convention of 1929 that stipulates a compensation of $10,000.
“Part XV, Section 74, sub section 1-4 of the Civil Aviation Act of 2006 gives NCAA the responsibility of ensuring that any carrier operating air transport services to and from or within Nigeria or aerodrome operator, aviation fuel supplier, or any provider of ground handling, meteorological, air traffic control, aircraft maintenance services and other allied services maintain adequate insurance covering its liability under the Act.”
Ekunwe further noted that NCAA in a bid to find a lasting solution to the delay associated with the settlement of claims and compensation by airlines, has put in place procedures to ensure that domestic airlines insurance cover and certificates are not only adequate, but valid for the Combined Single Limit Coverage and that the required insurance premium is paid as and when due to ensure safety.
Chairman of Aviation Roundtable Captain Dele Ore, said it would have been ideal for the country if local insurers are able to take full liability of passengers on board an aircraft should there be an air accident. The aviation expert said all local insurance companies put together cannot take liability of a big aircraft if it goes down with a large number of passengers on board.
“They are expected to spread the risk by reinsuring the capacity, such that when an aircraft goes down with 200 passengers, they can pay compensation to the families of the deceased without any problem, he said.
“There is no local insurance company that has the capacity to insure 200 passengers on board a flight, but what they had to do is to reinsure through reputable organisations like LIoyds of London and those who have done that have no problem.”