Legal reforms behind Uganda's insurance boom – Independent
October 20, 2022 Business, In The Magazine, The News Today Leave a comment 
Sector has also benefited from strong regulator
Kampala, Uganda | ISAAC KHISA | Uganda’s insurance sector is more than seven decades old but momentous growth has only been recorded in the past 10 years as multinational and local insurers scramble for a pie of the emerging market.
Big insurers such as German’s Allianz, Mauritius-based Mauritius Union Assurance Ltd, British-based Prudential Assurance Ltd, Kenya’s GA Insurance, and South Africa’s Sanlam and Old Mutual with a mix of local players such as Statewide Insurance Corporation (SWICO) have set up a presence in Kampala with tentacles stretching to the rest of East Africa.
Most players have recently set up foot in Kampala to tap into the growing middles class, investment in infrastructure development and prospects in the country’s fledgling oil and gas sector.
Latest statistics from the Insurance Regulatory Authority of Uganda, the country’s sector regulator, show that the country’s gross written premiums for both non-life and life have more than quadrupled over the past decade from merely Shs 240 billion in 2010 to 1, 180 billion in 2021.
Life insurance business’ contribution towards the gross written premiums has more than tripled from merely 10% to 33% during the same period under review, signaling increasing customer appetite for life insurance policies such as education, whole life insurance, and health among others.
Similarly, insurance penetration has increased from 0.65% in 2010 to 0.8% in 2021 while insurance density has increased from Shs7, 278 to Ush28, 059 during the same period. Claims pay-out increased from Shs 82.14 billion in 2010 to Shs 564.79 billion in 2021, representing a nearly 600% growth.
Whereas Uganda’s insurance sector started in 1948 with the establishment of the first local insurance company, East Africa General, the sector failed to pick up until 2010. Customers and the general public then believed that insurers were untrusted and did not honour claims payments.
Followers of the sector told The Independent that legal reforms and strong supervision and regulation explain the recent rapid growth.
“The constant review of the relevant laws and a strong regulator who is able to listen to complaints and make decisions has contributed to the current growth,” said Maurice Amogola, a former CEO of Minet, an insurance broker in Uganda.
Amogola cites the Insurance (Amendment) Act, 2011, which elevated the then regulator, the Uganda Insurance Commission (UIC) from being a mere department in the Ministry of Finance, Planning and Economic Development to an independent regulator, the Insurance Regulatory Authority of Uganda (IRA).
He also cites the latest enactment of the Insurance Act of 2017 that enabled the regulator to supervise insurers based on the risks that they undertake commonly known as risk-based supervision to develop a strong insurance sector.
The law also stipulated that the insuring public pays for the insurance services in cash to ensure that insurers have enough liquidity to pay for the claims.
It also stipulates that the minimum capital requirements for an insurer vary among insurers depending on the risk profiles they undertake. For that, local insurers need to have a paid-up capital of Shs 6 billion for non-life, Shs 3 billion for life, Shs 9 billion for re-insurers, and Shs 500 million for Health Membership Organisations (HMOs) compared to the current Shs 4 billion for non-life, Shs 4.5 bn for life, Shs 6 bilion for r-insurance and Shs 1bn for HMO’s respectively, to strengthen the insurer’s financial muscle to handle big risks and retain most of the premiums locally.
Amogola said the rising incomes, faster growth in industries, and investment in infrastructural facilities including roads, dams, airports, and oil and gas have also fuelled the growth of the sector as investors seek to mitigate any potential risks.
The latest data from Uganda Investment Authority suggest that the east African nation has over 5,000 operational industries in various sectors, with Jinja City, remaining the country’s industrial hub with over 100 industries.
The industrial sector’s contribution to GDP stands at 27.6%; with mining and quarrying contributing 2%, manufacturing at 15.4%, electricity at 1.3%; water at 2.3%, and construction at 6.6%.
Ibrahim Kaddunabi Lubega, the Chief Executive Officer at IRA told The Independent that indeed the country’s insurance sector has evolved over the years driven by strong progress in regulation and supervision, competition, market development, and sector stability.
He said, for instance, that more farmers are now taking on agriculture insurance as they seek to tap into the government premium subsidy that stayed in the FY 2017/18.
“We have also continued to license banks to act as intermediaries under the bancassurance arrangement that seeks to enhance insurance distribution by leveraging on the distribution networks and customer base of the banking institutions,” Kaddunabbi said adding that business deals that passed through the banks have ballooned to Shs103.54 billion premium in 2021 since banks ventured into bancassurance in 2017.
He said the sector is into riding on savings and credit cooperative societies to sell insurance and thus widen distribution channels.
Kaddunabbi said the regulator has also set up a Complaints Bureau to receive and handle insurance-related complaints something which has enhanced confidence in the insurance sector.
He said there’s an increase in public confidence in the complaints redress mechanisms as evidenced by a year-on-year increase in the number of complaints handled from 46 reported in 2011 to 142 reported in 2021.
Kaddunabbi said there has also been an increase in innovativeness in the sector and a number of innovative products and solutions have been brought onto the market over the years.
He cites the development of micro-insurance products currently serving populations in the low pyramid and the development of digital platforms in partnership with the Ministry of Works and Transport and traffic police to combat fraud.
Still more needs to be done
However, Amogola said there’s still need to encourage the majority of the population to buy insurance so that the cost of policies goes down.
“Insurance is about numbers and the more people buy insurance, the lower the premiums,” he said.
“Insurers like those in the United Kingdom and South Africa need to come up with a new innovation where customers can be paying for their insurance covers probably monthly rather than paying a lump sum amount that the customers feel unaffordable. However, this also needs trust, and each party honour their obligation.”
Amogola said insurers also need to float their shares on the stock market to not only enable the local population to own shares in the company for inclusive growth but also raise capital for expansion into the neighboring countries especially the Democratic Republic of Congo.
He said a strong insurance sector boosts the country’s financial sector enabling the government to borrow funds locally to invest in various projects with the shareholders reaping good returns.
Bright future
Going forward, Kaddunabbi said Uganda’s insurance future is very bright since the Covid-19 pandemic heightened insurance awareness, notably health insurance.
“People now appreciate insurance more than before and this is expected to only improve given that the Insurance Regulatory Authority and industry players are investing heavily in public awareness,” he said, adding that insurers are increasingly adapting to digital channels and self-service arrangements to ease access and enhance customer convenience.
Global insurance players set eyes on Kampala
*German insurer Allianz acquired a majority stake in Jubilee life insurance in Uganda, Burundi, Tanzania, and Mauritius in addition to Kenya whereas Mauritius-based Mauritius Union Assurance and the British-based Prudential acquired Phoenix and Goldstar Life Assurance Ltd, respectively.
*Sanlam Emerging Markets entered the Ugandan market through the acquisition of NIKO insurance in 2013,
*Kenya’s GA insurance acquired Nova Insurance Company Limited as South Africa’s financial services firm Old Mutual plans to acquire a significant stake in UAP Old Mutual Life Assurance Uganda Limited soon.
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Tags Amogola Insurance Isaac Khisa Kaddunabi SWICO Uganda
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