The Nigerian aviation industry can lay claim to being one of the worst hit due to the economic recession currently plaguing the country. This has led to the various attempts by airlines to cut costs, including insurance costs, through many means.
However, the sad news is that this practice is not new as airline have tried several gimmicks even before the recession began, with many of these gimmicks flouting both local and international laws. For example, Section 50 (1) of the Insurance Act 2003 stipulates that “the receipt of an insurance premium shall be a condition precedent to a valid contract of insurance and there shall be no cover in respect of an insurance risk, unless the premium is paid in advance.”
However, several airlines as far back as 2010 were flouting this law by buying insurance covers on an annual basis, but not paying until later in the year. And for many who did not have any aircrash within the year, they usually evaded payment altogether.
This development led to aviation insurance taking up the major portion of outstanding premium. This not only increased the credit risk of insurers, but also introduced uncertainty in the market as to the capacity of many insurers to meet their obligations to insurance policyholders and other stakeholders.
To curb this, the National Insurance Commission, NAICOM, enforced Section 50 (1) of the Insurance Act 2003, meaning that only insurance covers for which full premium have been received in advance, either directly by the insurer or through a duly licensed insurance broker, are recognised as insurance contracts in the eyes of the law.
As such, airlines were forced to pay up full premium as according to the Montreal Convention 1999, mandatory adequate insurance covering of liability of any airline while in international flight operations is required.
Due to the current recession, though, what airlines have resorted to is buying their insurance cover monthly instead of annually due to scarcity of funds. How this will impact on flight safety and the insurance industry remains to be seen.
Parts of this article originally appeared in Vanguard Newspapers.