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Insurance law does not allow Exxon to provide its own insurance for oil sector
… industry operators say Minister cannot give company permission
Kaieteur News – The 2016 Production Sharing Agreement (PSA) that Guyana has with Exxon Mobil and partners require them to have insurance to conduct its oil business here in Guyana. They must have insurance for property loss, pollution, employee liability and asset coverage among others. It also says that ‘to the extent of applicable law, rules and regulations such insurance could be provided through the contractor’s affiliate insurance companies. It says to that ‘subject to the minister’s approval, which shall not be unreasonably withheld, the contractor… shall have the right to self-insure part or all of the aforementioned insurances…”
This means that Exxon has the leeway to place insurance to protect Guyana’s environment, its assets and other valuables, with itself or with a company it has ties to. Local insurers and brokers are adamant that Guyana’s laws do not allow this situation, nor was it changed to accommodate the “cleverly worded” provisions stated in the PSA.
The insurance operators say that where the PSA speaks about the approval for insurance by affiliate company to the extent of applicable laws and rules, and through the minister, provide conditional provisions for the oil companies to secure the right to self -insure. They say however that “the extent of applicable law, rules and regulations is actually nil, since the Guyana Insurance Act, which is the applicable law, does not permit it.” And where the PSA speaks directly to the oil company self-insuring through the minister’s permission, the government official does not have the legal power to do so, the insurers said. “This is allowing for the circumventing of third-party commercial insurers and local insurers. The intention is again defeated because the minister cannot approve or make legal a breach in law, in this case, the Insurance Act.” It was noted that despite the clever wording of the PSA, Guyana’s laws are quite adequate to address attempts for self-insurance. And until the laws are changed, the insurance operators say that the current provisions are open to be legally challenged or rectified by the regulator of the industry, the Bank of Guyana.
The insurance agents say self -insured oil companies keep the risk themselves and are also responsible for paying liabilities and losses incurred through their operators. The problem with that is that sometimes liabilities from operation mishaps could be so huge that it surpasses the capabilities of the affiliates or captive companies, created by the oil companies to cover their policies. Governments are then left saddled with huge bills in cleanup cost, liabilities among others, and in many cases, end up in court fighting with oil companies to have them address the issues caused by their operations.
Outside of this, taxes are lost when the oil companies are able to keep the risk because local companies are not involved in the multi-million- dollar arrangements, so there is nothing to be gained by the government. All the ceding commissions, premiums and other revenues garnered from the placement of the policy is received by the oil companies’ captives and affiliates outside of Guyana.
There is also the loss of risk management scrutiny and best practices. Third party commercial insurers are said to keep rigorous levels of risk management and could cancel coverage if conditions of policies are not adhered to. Stringent checks and balances are conducted to ensure a properly placed coverage. Operators say that without their involvement Guyana ability to say whether the oil companies are using best practices and managing risk appropriately is almost nonexistent.
The operators insist that when the oil companies are self -insure it does not require the involvement of locally registered insurers. So, to look like they are following the law, they will hire a local company to front. The fronting fee is the sum that the local insurance company would be paid to pretend as if they are managing the insurance coverage in country, when in reality, the coverage would be owned by the oil company’s overseas affiliate or captive company. Local insurers say that because insurance for pollution, transit risk, business interruption, third party and employers’ liability among others carry huge premiums, the money lost to the industry and that in taxes to the country remains significant.
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