Why Do Nigerian Airlines Still Pay High Aircraft Insurance Premiums?
Key Points
- 1Nigerian airlines paid over N15 billion in aircraft insurance premiums last year, highlighting a significant financial burden.
- 2The annual insurance premium for a single Boeing B737-300 classic in Nigeria is a minimum of $1 million, approximately ten times higher than in the US or Europe.
- 3Nigeria's Cape Town Convention compliance rating rose from 49% to 75.5% in 2024 following the IDERA signing, leading to the first dry lease in a decade (Air Peace/AerCap).
- 4High costs persist due to a 'high country risk' perception, fluctuating Naira-Dollar exchange rates, and global aircraft scarcity impacting the lease market.
Nigerian airlines continue to struggle with exceptionally high aircraft insurance premiums. This is despite recent regulatory progress. Total premiums paid by Nigerian carriers exceeded N15 billion last year. This financial burden impacts operational costs greatly.
Insurance underwriters report that the cost is comparatively very high. Nigerian airlines pay a minimum of $1 million annually to insure a single Boeing B737-300 classic. This is significantly higher than the $100,000 paid by airlines in Europe or the United States for the same aircraft type. Industry experts attribute this disparity to a persistent perception of "high country risk" in Nigeria.
Regulatory Progress and IDERA
The Nigerian government has made efforts to reduce this risk perception. Compliance with the Cape Town Convention (CTC) has notably improved. The CTC is an international legal framework for aircraft financing and leasing. Nigeria's CTC compliance score rose from 49% to 75.5% in 2024.
This improvement followed the signing of the Irrevocable De-Registration and Export Request Authorisation (IDERA) Advisory Circular. IDERA provides legal safeguards for lessors. It ensures the swift recovery of aircraft assets without legal interference. This action led the Aviation Working Group (AWG) to remove Nigeria from its watchlist.
This regulatory milestone has already boosted lessor confidence. Global lessor AerCap offered a dry lease to Air Peace. This was the first dry lease transaction for a Nigerian operator in nearly a decade. Dry leases are generally more cost-effective than wet leases.
Remaining Factors Keeping Premiums High
Despite the IDERA success, insurance premiums have not yet dropped significantly. Experts cite several factors beyond the IDERA's scope.
Country Risk and Market Dynamics
Former President of the Chartered Insurance Institute of Nigeria, Sunny Adeda, noted that no regular rate exists for aviation insurance. Premium rates depend heavily on the global market risk at any given time. High-magnitude losses worldwide can drive up premiums for all.
Olu Fidel Ohunayo of the Aviation Round Table (ART) identified three key factors affecting premium. IDERA addressed the security of equipment return. However, two factors remain unresolved and impactful.
- Fluctuating Exchange Rates: The unstable exchange rate between the Naira and the US Dollar, the currency of measurement, increases risk.
- Country Security Rating: The overall country security rating remains a concern for international underwriters.
Furthermore, global aircraft manufacturing is not meeting demand. Major global airlines are entering the lease market due to this scarcity. This market pressure sustains high costs for non-major players like Nigerian carriers.
The Role of the Regulator
Industry consultant Captain Sam Caulcrick stressed the role of the Nigerian Civil Aviation Authority (NCAA). International underwriters assess the NCAA's surveillance capacity. Robust safety oversight minimizes underwriting risk and lowers premiums.
The NCAA enforces Nigerian Civil Aviation Regulations (Nig. CARs). These regulations align with ICAO standards and practices. Nigeria's US FAA Category 1 rating helps assure international insurers.
Effective NCAA surveillance includes rigorous scheduled and unscheduled inspections. This proactive approach prevents incidents, reducing the frequency and cost of claims. Adherence to stringent maintenance standards is a key risk factor for insurers.
The NCAA is also enforcing stricter financial compliance. A "Zero Debt Strategy" with mandatory Advance Payment Guarantees (APG) is planned. This move, starting in January 2026, aims to build confidence in financial stability.
Ultimately, a combination of improved governance, administrative structures, and sustained regulatory compliance is necessary. Solving these external and internal factors will make insurance prices more favorable.
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Written by
Ujjwal SukhwaniAviation News Editor & Industry Analyst delivering clear coverage for a worldwide audience.
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