CONTRIBUTIONS OF INSURANCE IN THE MANAGEMENT OF RISK IN NIGERIA OIL INDUSTRIES
This project is on the topic titled “The Insurance Contribution in the Management of Risk in Nigeria Oil Industry” The work is divided into five chapters. Chapter one deals with background of the study, statement of problems that led to the research work, objectives of the study the research questions, scope of the research questions, scope of the research question, scope of the research question, scope and limitations of the study, significance of the study and definition of operational terms. Chapter two covers review of related literature, historical development of the insurance, reasons for insurance business in Nigeria, type of drilling operations, various type of risk in oil industry and so on. Chapter three discusses research methodology including source of data and validity of the instruments. Chapter four covers findings and discussions of findings and chapter five covers conclusions and the recommendations.
1.1 BACKGROUND TO THE STUDY
Nigeria’s economy before independence and shortly afterward largely depended on agriculture. This is because a good number of its citizens are farmers. Intact about 70% of the Nigerian populace then were basically farmers and this goes a long way to show that Nigerians are poor people. Agriculture then was her only source of foreign exchange through the sale of cash corps. Shortly after independence and the civil war, Nigeria economy changed as a result of oil boom in the early 705. This caused the total neglect of is agricultural sector and other mineral resources which are blessed with, the boom attracted foreign investors in so many sectors, they includes, bank, insurance companies and oil producing companies etc. Among the early oil producing companies to exploit its shores of Nigeria include British Petroleum Company, Uni Petrol etc. Petroleum is a product of crude oil which is found a black substance naturally underground.
The oil industry is an important aspect in the monetization process and industrial growth of all nations which serves as source of energy to most of the modern power generators and machineries. Petroleum is also serves as sources of revenue and also contributing to the national output. But due to the fact that our country’s economy depends largely on oil and it’s by product based on chemicals derived from oil sector and natural gas. It is invariably pertinent that one should consider the risk involved and the types that the petroleum industry as a whole are exposed.
One should be thinking of the ways to reduce the risk involved both in the offshore and onshore operations. Insurance cover is an appropriate way of handling and reducing those risk exposures that the oil companies experience. The insurance companies have now the capacity to cover most of the risks being envisaged by the petroleum industry. Insurance covers losses or destruction of properties, equipment and machineries. Insurance also essentially pays claims on fire out break, theft, oil spillage etc. or temporal disability and medical expense of the employee, or damage to their parties’ properties and make good any court judgment arising out of their general negligence of any sort. Insurance most important function is the indemnifying of oil industry in any loss. It prevents the industry form being handicapped financially after any loss or to stop production.
1.2 STATEMENT OF THE PROBLEMS
The major problems that prompted the research of this work include the following: Poor government control and monitoring of the business activities of oil and gas industry Failure of the petroleum industry to understand the potential contribution of insurance business to wards effective and efficient risk management Lack of awareness of high level of risk exposure to oil and gas sector especially that of offshore.
1.3 OBJECTIVE OF THE STUDY
The objective of the study includes the following:
To examine the potential contribution of insurance industry towards risk improvement and loss prevention/ reduction in oil and gas industry
To evaluate the problem facing Nigeria insurance industry in the management of risk expose to oil and gas sector
To evaluate the performance of Nigerian insurance industry in oil and gas sector
To assess the attendant risk in oil industry with a view to assessing the oil for available insurance cover.
1.4 RESEARCH QUESTIONS
Are their any problem/ challenges facing insurance industry in management of risk exposed to oil and gas sector?
Is the insurance protection provided by Nigerian insurance industry adequate to enhance the business activities of oil and gas sector?
Does insurance industry render any service to the oil and gas sector?
Is insurance a tool for risk improvement and loss stabilization in oil and gas sector?
Is Nigerian insurance industry capable of underwriting oil and gas risk?
1.5 SIGNIFICANCE OF THE STUDY
The research work will be relevant to the following: Oil and gas sector: The study will be of immense significance to oil industry because it x-rays the various products need and importance of insurance in oil and gas sector. The study will be useful for academic purposes and it will serve as a data base for students carrying out further research on the related topic in future. Insurance industry: The study will also be useful to insurance industry in the sense that it would help them to improve in the service they render to oil and gas sector and the economy at large. The study also serves as a source of revenue to the Nigeria economy.
1.6 SCOPE AND LIMITATION OF THE STUDY
The scope of this research work is limited to some selected oil companies like NNPC in Porthacourt, Oil Shell Company and Mobile Petroleum Company in Porthacourt. Therefore the information gathered will be used as inference to the oil companies and other insurance in Nigeria.
The following are factors that limited the study of this research work.
Time: The time fame for this project work was too short as other academic work almost cut in time of investigation and data collection.
The unco-operative attitude of some respondents who see this research work as such that it will pose threat to their work and position and this posed a limitation of this research work. Lack of research materials because of inadequate research material also contributed to the limitation of this research work. Lack of funds prevent the author from traveling to places to source for research materials.
1.7 DEFINITION OF OPERATIONAL TERMS
Claims settlement: This is a demand by the insured for payment under a policy. Claim settlement means the insurer paying the insured a specify amount on the occurrence of insured events.
Drilling: Drilling is a process of producing product using a tool called drill.
Insurer: This is the people who agree to indemnify the insured upon occurrence of the event insured against subject to payment of insurance premium and compliance with policy term and conditions, insurer is also a seller of insurance product.
Insured: This is a party that is entitled to receive the benefit of insurance in the event of the occurrence of the insured risk
Liability insurance: This is the type of insurance where a specified event imposes upon the insurance a liability towards third party
Oil spoilage: This is a layer of oil floating on water or covering the shoreline of a body of water usually petroleum which has leaked from an oil pipeline
Offshore: This is the operations of oil drilling companies on sea.
Pollution: Pollution is the discharging into the atmosphere of any harmful or poisonous substances
Premium: This is consideration paid by the insurance to the insurer to enable him secure insurance cover and be compensated on the happening of event insured against
Risk: This can be defined as uncertainty of financial loss. Risk is also that which significance potency of damages though with a degree of uncertainty.