Local insurance fraternity hopes to be more than fronting agencies for ExxonMobil

Dec 17, 2022 News

Kaieteur News – The local insurance and brokerage fraternities are hoping to be more than fronting agencies for U.S oil giant ExxonMobil and its partners.

The agencies are hopeful that firms here will earnestly be provided with the opportunity to adequately service the US multi-million-dollar insurance scheme, needed for safeguards in the oil sector.

“We hope that the essence of the Local Content Act and the meaning is followed going forward,” President of the Insurance Association of Guyana, Melissa DeSantos, told Kaieteur News on Thursday.

In an invited comment, she told this publication that “the local industry is working assiduously to get the consortium off the ground so that the local industry could truly benefit.”

President of the Insurance Association of Guyana, Melissa DeSantos

She said that the local sector is set to lose out on large sums of money since the fronting fee that will be offered is “just a commission.”

Kaieteur News reported that Exxon affiliate Esso Exploration and Production Guyana Limited (EEPGL) at the start of the month published a notice to put in place an agreement for the provision of local insurance services and requested information of commercial and technical content from suppliers for meeting EEPGL’s bid selection requirements for Local Guyana Insurers – Yellowtail and Gas to Energy Projects Development Insurance Program.

However, it has been confirmed by industry insiders that what the company is actually requesting is for a local firm to pretend to hold the project’s insurance policies in-country, when it would really be a foreign agency owning all rights. The local company is paid a fee for its acting, while all the ceding fees, premiums and other revenue goes to the foreign holder.

Industry insiders have spoken strongly against the oil company’s actions which they say not only circumvent the local content law but cheats the industry out of large sums revenue and their ability to be the government’s eyes in monitoring the sector.

This is the first local insurance placement to be made by the oil company and already operators say they are being “disingenuous in their attempt to appear to be in conformity with the local content act for which the grace period ends on December 31, 2022.”

It was reminded that this is despite the environmental coverage for initial oil projects still not being in country as well as unclear as to who holds the policies. The source told this newspaper that the year will run out and the placement method will remain the same noting that this “robs the local industry of broking commissions, ceding commissions and the opportunity to develop the industry.”

The industry operator said that Guyana must know who is getting all this money.

Attention was thus brought to the issue of ‘captive insurers’ which is a form of self -insurance. Under the petroleum contract the oil company can self-insure part or all of the insurance required.

Without information on the location of the existing policies, industry operators are left to believe that Exxon or one of its companies may be providing coverage themselves.

The Operator reiterated that allowing Exxon to operate in the manner it has started off effectively robs the Government of any oversight… and who benefits and why – clearly in the absence of claims, the captive insurer owned 100 percent by the oil major who keeps the premiums paid, if it cedes out to reinsurers, it earns the ceding commissions that should be earned by the local companies.

Similarly, the brokerage that should be earned by local brokers goes to its friends. Now, the sweetest part of this deal is that it is all billed back to the Guyana taxpayer as cost oil on the presumption that it is imperative coverage placed to independent third-party insurers,” the operator explained.

Kaieteur News understands that industry operators had recognized very early the danger the oil company’s handling of insurance posed and had communicated their concerns to industry regulators almost four years ago.

Former head of the Environmental Protection Agency, Dr. Vincent Adams had painstakingly argued that moves were made to provide US$2.5B coverage for the budding sector at the time when Exxon Guyana’s new President Alistair Routledge, had denied such a commitment being given under Country Manager Rod Henson.

However, media reports from 2019 show that Guyana may have very well secured the sum that was repeatedly denied. A Stabroek News exclusive on July 22, 2019 ‘Exxon secures local insurance’ quoted Henson as saying that EEPGL had secured Diamond Fire and General Insurance (DFGI) Inc, a subsidiary of Demerara Distillers Limited, to handle the policy.

“We have the required industry insurance and primary focus will be on safety. We are not going to have an oil spill,” Henson had told Stabroek News.

He was reported as saying that in addition to the US$2.5 billion in insurance coverage, ExxonMobil and partners Hess and CNOOC are currently working with the Bank of Guyana, the Department of Energy and the Environmental Protection Agency (EPA) regarding their plans for coverage “above and beyond” the insurance sum, to be absorbed by the parent companies.

This meeting of state agencies was also denied by the current Government until Insurance Operators confirmed the activities that were taking place at the time. It is unclear whether DFGI still has the coverage since Exxon’s President said that the policy was not provided.

The last information on this matter was that Exxon is offering US$600M rather than the US$2.5B on each oil project. Adams has described the US$600M as inadequate given the quantity of crude discovered.

No update has been given also regarding the “above and beyond” US$2B coverage being negotiated by the Government and parent company in case the US$600M is not enough to cover a disaster. Operators say as far as they are aware, no one is covering this new insurance scheme. They are also questioning why to date the regulator has not secure the sector given what’s at stake.