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THE IMPACT OF INSURANCE IN THE GROWTH OF THE PETROLEUM INDUSTRY IN NIGERIA (A CASE STUDY OF LEADY WAY ASSURANCE AND I.G.I)

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Abstract

The impact of insurance in the growth of petroleum industry in Nigeria, insurance plays a vital role in the petroleum sector from the mining of petroleum products to its final use. Petroleum industry is the major source of income in Nigeria, therefore there is a need for proper protection of the industry. This project examines the impact of insurance in the petroleum industry. It also identified the various services insurance company will render to the petroleum industry. It also create awareness on the importance of insurance in the petroleum sector. The method use in analyzing this data includes the descriptive method and questionnaire method. The tools used are: figures, percentages and tables, chi-square (x2) method was used in testing the hypothesis. Based on the data collected and analyzed in this study, the following findings were made: that there are various units which are exposed to risk during the offshore operations. It was also noted that the local content implementation

INTRODUCTION

1.1  BACKGROUND OF THE STUDY

Before independence and shortly after the words, Nigeria depended solely on agricultural products for her foreign exchange earnings. The oil boom in the 70’s led to the Nigeria economy becoming an oil economy with a resultant neglect of the agricultural sector.

The boom, attracted many oil producing company to Nigeria, exploration and production of crude oil started on both onshore and coasts of Nigeria. Among the early oil production companies to insight crude oil in Nigeria are: The British Petroleum Company (now shell), Agip, Mobil, Total and most recent. Unipetrol, chevron, to mention but a few, the most recent development in the petroleum industry in Nigeria is the establishment of the petrochemical companies by the federal government.

It is a common knowledge that the sector is currently dominated by the international companies, which has the financial muscles and technical expertise to invest in this highly capital incentive, highly risk and technologically driven sector. It is unfortunate to note that after over five decades of oil exploration and production, Nigeria could only boast of less than 20% local input in the industry, that is generating over 90% of Gross National Product. On the other hands, countries like Brazil, Malaysia and Norway has grown their local content to enviable levels.

The poor participation of Nigerians in the oil industry led the federal government to initiate the “Nigerian content” development policy in 2001 by selling up the national committee on Nigerians contents (Adepoyigy 2006).

The committee has defined “Nigerian content as “the quantum of composite values added to, or created, the Nigerian economy through a deliberate utilization of Nigerian human and material resources and services in the exploration, development, exploration, transportation, and sales of Nigerian crude oil and gas resources, without compromising quality, health, safety and environment.

Petroleum products is used in all major aspect of human endeavors, this include household, manufacturing, transportation and communication. The petroleum industry has become an important ingredient in the modernization process and industrial growth of all nations. In addition, for developing countries, petroleum is a source of revenue generation, foreign exchange earner and a high contributor to the National Gross Domestic Product. Little wonder therefore that our age has being described as the “age of petroleum”. In their publication on “petrochemical and the Nigerian economy”, NNPC defined petrochemical as the product base on chemicals derived from oil and natural gas”.

As the country’s economy depend solely on oil, product chemical derived from oil and natural gas, then one wonders various types of risk that the petroleum industry are exposed to. The insurance industry ensures that oil companies which have enormous risk are insured. The insurance industry advice on.

 

1.2  STATEMENT OF THE PROBLEM

1. The impact of the insurance services is not adequately felt in the oil and gas industry
2. Petroleum industry do not know how to handle their various insurance policy document.
3. Nigerian insurance industry are not actually practicing local content policy to its fullest.

 

 

 

1.3  OBJECTIVE OF THE STUDY        

1. To examine the impact of insurance services in oil and gas industry.
2. To educate workers in petroleum industries on how to handle various insurance policy documents.

iii.    To make sure that Nigerian insurance industry actually participate fully in the development of the local content initiative.

1.4  RESEARCH QUESTIONS

1. Do you know why insurance services are not adequately felt by oil and gas workers?
2. Why is it that oil and gas workers does not known how to handle various insurance policy document?
3. Nigerian insurance industry are not adequately participating in local content policy, what are the reasons for this?

 

1.5  RESEARCH HYPOTHESIS

Ho:  Nigerian insurance services are not felt by the oil and gad workers.

Hi:   Nigerian insurance services are felt by the oil and gas workers.

Ho:  Nigerian oil and gas workers do not known how to handle insurance policy documents properly

Hi:   Nigerian oil and gas workers know how to handle insurance policy documents properly

Ho:  Nigerian insurance industry do not actually practicing local content policy to its fullest

Hi:   Nigerian insurance industry do  actually practicing local content policy to its fullest

 

 

 

 

1.6  SIGNIFICANCE OF THE STUDY    

1. To reveal the risk exposure units in the petroleum industry, to enable them make decision on which one to recommend for insurance protection.
2. The study will show the level of development achieved in the industry by the implementation of the local content policy.

• This study will act as a means of creating more awareness on the importance of insurance to the petroleum industry as well as the general public.

1. This study will serve as a foundation for further study
2. The recommendations made at the end of this study will be a great importance to the insurance industry, graduates, the government as well as general public.

 

 

 

1.7  SCOPE AND LIMITATIONS OF THE STUDY

This stud will evaluate the impact of the insurance in the growth and development of the petroleum industry. It also discuss the areas in which insurance has contributed in the oil industry.

Data were sourced from many areas, example internet, textbooks, libraries and journals relating to the topic. Selected insurance companies in Enugu such as Leadway assurance.

IGI

Although it is the intention of the researcher to cover the whole activities of the oil industry, but this research is no exception to such problems

1. Finance: There was no sufficient to carryout the research and also in the buying of the research instrument.
2. Time: The time frame for this project work was too short as other academic work almost cut in time of investigation and data collection.
3. 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.
4. Lack of research materials: because of inadequate material also contributed to the limitation of the research work.

 

1.8  DEFINITION OF OPERATIONAL TERMS    

Insured/Assured: The insured or assured is a party that receive the sum insured/assured (indemnify in the case of non life assurance at the happing of the insured perils).

Insurance: Insurance has been defined as an agreement between two partiers, namely the insured and insurer, whereby the insured agreed to pay a small amount of money called premium to the insurer, and the insurer promise to compensate him/her at the event loss insured against following the terms, condition and within the period of the policy.

Premium: This is the monetary consideration paid by the insured to the insurers for in return for promise to pay the sum-insured at the event of loss

Risk: It can be defined as uncertain event; it is the uncertainty as to the occurrence of an economic loss.

Nigerian Content: The committee set up by the federal government has define Nigerian content as the quantum of composite values added to or crated in the Nigerian economy through a deliberate utilization of Nigerians human and materials resources and services in the exploration, development, exploitation, transportation and sale of Nigerian crude oil and gas resource, without compromising quality, health, safety and environment.

Local content: It is a requirement that the local market should manage about 45% of every energy risk and place between 55 and 60% abroad through accredited reinsurance brokers.

Petroleum: According to oxford dictionary, it refers to mineral oil is found under the ground or sea ands its used to produce the gas or patrol on the land rather than  at sea.

Onshore: Blowing from the land to the sea. It means the operating of oil drilling on the land.

Offshore: This is the operation of oil drilling on the sea.

Petrochemical: Is a chemical substance obtained from petroleum or gas.

Refinery: Is a factory where substance such as oil and other substances are refined or purified.

Drill: Is a tools or machine with a pointed end for making holes

See page: a place where water or petroleum seeps up of the ground to form a root.

Indemnity: It is the principle of insurance whereby the insured is being compensated by placing him in the position he was before suffering a loss.

GNP: Gross National Product, it can be defined as the total market value of all final goods and services produces in the economy in one year.