Category Risk Management

Power sector needs sound risk solutions

03 December 2015 Delphine Maidou, Allianz
Delphine Maidou, Chief Executive Officer for Allianz Global Corporate & Specialty.

Delphine Maidou, Chief Executive Officer for Allianz Global Corporate & Specialty.

• Nigeria needs to improve and protect risk profile of existing and new power infrastructure. • The current low levels of power affect businesses, economy and society negatively. • The country needs to focus on renewable energy to increase sources of power. • Appropriate risk management and risk transfer solutions will enable economic growth and innovation.

Allianz Global Corporate & Specialty (AGCS) Africa CEO, Delphine Maïdou urged business, government and civil society in Nigeria to improve and protect the risk profile of existing and new power infrastructure through appropriate risk management and risk transfer solutions at a conference in Lagos on 3 December. 

The country with 180 million people currently has electricity generation capacity of 4,500 MW (megawatts) and plans to increase this to 20,000 MW by 2020. Compared with India, which generates 774 units of electricity per capita, Nigeria produces 156 units – making it the lowest electricity generation per capita globally. According to The Nigerian Association of Energy Economists, (NAEE), despite statistics indicating that 45 percent of the country’s population is currently connected to the national grid, regular supply is still restricted to just about 25 percent of the population. This means 75 percent of Nigerians don’t have access to regular power. However there has been a relative improvement since the privatisation of the industry two years ago, but it will take many years to increase access to power for most Nigerians.

“Electricity is the backbone of postmodern societies and economies. Continuous and reliable power supply is critical to daily productions within industries such as manufacturing, transport, mining and others for the economy to grow,” said Maïdou who was brought up in Burkina Faso. “The current low levels power and blackouts is causing low production levels, idle labour and facilities and damage to goods. It also may result in indirect costs like social upheaval, accidental injuries, rising legal costs and loss of water supply among others.”

But this is not just a Nigerian problem as the other 47 countries of Sub Saharan Africa with a combined population of 800 million, generate roughly the same amount of power at 70,000 MW as Spain with a population of 45 million according to KPMG. The country has an abundance of coal, oil and natural gas, hydro, wind and solar and needs experts, who can focus on renewable energy as an additional source of power. Nigeria is currently working hard to sort out its power issues.

“Of course the expansion of power networks can be achieved by ensuring that existing infrastructure is better managed, improved and secured while the new infrastructure is built speedily to ensure that the country maximises on its current and future economic growth opportunities,” explained Maïdou. “So, while government and the private sector are working hard to maintain and construct new power generating plants in Nigeria, they need to put in place sound risk management policies for their facilities and ensure that they have adequate insurance and risk transfer solutions to avoid any potential losses as a result of sudden unforeseen and accidental events.”

Typically construction and operational insurance covers the generation, transmission and distribution of power. “Ultimately, relevant role players need to ensure that they provide adequate information to insurers, which will enable underwriters to do a proper assessment of the risk. Insurance companies within the country also need to ensure they have the capability, capacity and capitalisation to underwrite power risks,” stated Maïdou.

In this regard, Allianz has been upskilling the market to make sure that insurance professionals within the country are equipped to provide their clients protection against unexpected losses and peak risks as well as freed up capital which can be deployed elsewhere. In this way, the insurance industry enables economic growth and innovation by reducing volatility and providing capital relief in case of a loss.

However insurance is not a substitute for sound risk management. “A well organised and implemented business continuity plan (BCP) is vital for the survival of organisations in case of power blackout and machinery breakdown as well as to gain access to insurance solutions for such risks. However, the business continuity planning can fail in an emergency if it is not constantly adapted to current conditions and regularly practised. Tests, training, audits and simulations are the supreme discipline of business continuity planning,” advised Maïdou.

Power supply is a critical infrastructure. Therefore, provision of sufficient power is critical to maintain and grow the economic prospects within Nigeria, but the country needs to make certain that the facilities that provide the energy are sufficiently insured against any unforeseen and accidental events.

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