Africa is a commodity-producing continent. The commodities are, more often than not, bought by international traders through local companies set up by them. More trade means more insurable assets in Africa, which leads to more insurance claims.

The economic boom in Africa is encouraging more trade in Africa. Unlike in the past, there is now a business incentive for cargo insurers to pursue recovery actions against liable third parties in Africa as the losses to traded commodities can no longer be ignored or absorbed.

The African market is dominated by international traders who rely on global transport insurers to underwrite their risks. The cost benefits of global insurance are obvious. There are few African insurers that have the capacity to operate alone in the transport storage insurance market.

The African transport insurance market is highly regulated. There are many statutory insurance regulators who, in terms of their domestic insurance legislation, require any assets within that country’s jurisdiction to be insured with (or through) a local insurance company. Failure to comply with these requirements can lead to an imposition of a fine or even imprisonment of the wrongdoer. Often these insurance regulators also require that only locally licensed brokers, loss adjusters and surveyors are involved with the insurance of a local asset. Reinsurance into London, Europe and the US is common.

It is the insured local entity that will be liable for any transgression, in particular the respective board of directors or managers of the party that has not insured its assets locally.

The regulation of the African transport insurance industry is not new. In many instances, the relevant insurance legislation has been around for some time. What is new is the apparent desire by local regulators to enforce the legislation.

Those insured take the view that once they are  indemnified by the insurer and received payment for the loss in terms of its insurance policy, it is no longer involved with the recovery action. This is not correct. In terms of the doctrine of subrogation, the insurer may commence recovery action in the name of the insured, and the insured is obliged to reasonably assist the insurer with its attempts to recover the loss. If the recovery action is commenced in an African country that has a regulated insurance industry, the insured, among others, may (where the goods are insured elsewhere) be exposed to the risk of non-compliance with local insurance legislation. Certainly, any liable third party may, or discover that the goods were not locally insured, raise the issue as a litigation or negotiation tactic.

The increased enforcement by African insurance regulators means that commodity traders, transporters and their insurers must be aware of both the local regulations and the insurance arrangements set out in their commercial transactions.

For example: A local buyer, part of a global trader, buys goods from a local seller. The goods are stored in Zambia for processing and later sold to the global trader for subsequent export and distribution. Often the goods are insured via London or in the European market from the moment the local buyer goes on risk. On the face of it, this is contrary to local regulations.

With the increase of trade in Africa, compliance with African insurance laws, by both the trader and its insurer, is going to become more important as more recovery actions are pursued in respect of damaged cargo. It is worth taking legal advice on these issues.

Peter Lamb

Brief biography:

Peter Lamb is a transport lawyer at Norton Rose Fulbright South Africa.  He specialises in transport, shipping and marine insurance law. He advises cargo interests and their insurers on various shipping, transport and marine insurance matters. Peter has assisted in marine insurance disputes in South Africa and other African jurisdictions, including Tanzania, Namibia and Zambia. Peter has been awarded an LLM in shipping law from the University of Cape Town.