In December 2022, Uganda introduced new regulations governing insurance in the oil and gas sector. These oil and gas insurance regulations aim to strengthen the local insurance industry’s capacity to handle risks associated with this growing sector of Uganda’s economy. Let’s break down the key points of these regulations.
Purpose of the Oil and Gas Insurance Regulations
The main goals of these regulations are to:
- Set standards for insurance business in the oil and gas sector
- Enhance local insurers’ ability to underwrite oil and gas risks
- Increase local retention of premiums and spread risks effectively
- Build local capacity in line with national content requirements
- Encourage fair and open arrangements for oil and gas insurance
What Counts as Oil and Gas Insurance?
The regulations define oil and gas insurance as covering liability for upstream (exploration and production) and midstream (transportation and storage) activities. This includes coverage for:
- Operators’ extra expenses
- Liability risks
- Construction risks
- Political violence and terrorism
- Delay in start-up
- Operational risks for production and processing facilities
- Business interruption
Key Requirements
- Local Insurance Mandate: All oil and gas risks must be insured by companies licensed in Uganda.
- Pooling Arrangements: Insurers are encouraged to form “pooling arrangements” to share premiums, expenses, losses, and profits for oil and gas risks.
- Approval Process: Pooling arrangements must be approved by the Insurance Regulatory Authority of Uganda.
- Local Capacity First: Before placing insurance outside Uganda, insurers must first exhaust local capacity to the maximum extent possible.
- National Content: Pooling arrangements must provide a national content program, including employment and training of Ugandans, technology transfer, and succession planning for expatriates.
- Annual Returns: Insurers involved in oil and gas business must submit annual returns to the regulatory authority.
Implications for the Insurance Industry
These regulations present both opportunities and challenges for Uganda’s insurance sector:
- Opportunities: Local insurers have a chance to grow their capacity and expertise in a potentially lucrative market.
- Challenges: Meeting the technical and financial requirements for oil and gas insurance may require significant investment and upskilling.
Conclusion
Uganda’s new oil and gas insurance regulations represent a significant step towards developing local capacity in this specialized area of insurance. By encouraging collaboration through pooling arrangements and prioritizing local content, the government aims to ensure that the benefits of oil and gas development extend to the country’s financial services sector.
As the oil and gas industry in Uganda continues to grow, these regulations will play a crucial role in shaping the insurance landscape and supporting the broader goals of economic development and local capacity building.
For more information, download the Insurance (Oil and Gas Business) Regulations, 2022.