Uganda’s insurance industry has grown quite significantly, nearly touching the UGX1 trillion in premiums mark in 2019- what are some of the key highlights of this growth?
First of all, in general, I must say, for the period I have been at the helm of the Insurance Regulatory Authority (IRA), the insurance industry has continued to register a two-digit positive growth year in, year out and 2019 was no exception. In 2019, the insurance industry registered a growth of 13.22 percent in gross written premiums- from UGX860 billion in 2018 to UGX974 billion. Broken down into classes, general or non-life insurance contributed UGX622 billion, up from UGX572 billion in 2018. Life insurance also grew by 27 percent, from UGX218 billion to UGX276 billion.
The Health Membership Organizations (HMOs) class or medical insurance, grew by 9 percent, from UGX75 billion from about UGX69 billion. Micro-insurance, an area of very much interest to IRA, because it addresses the insurance needs of the everyday person, grew from UGX24 million in 2018 to UGX300 million in 2019. Microinsurance figures for 2020 are already encouraging and we are excited about that.
We also realised good growth in claims paid- because insurance exists to pay claims, from UGX327 billion to UGX375 billion. Overall, as a regulator, we find this very encouraging.
Does the industry have some form of metrics for tracking efficiency in claims payment? If yes, would you say there has been an improvement in the efficiency of claims payment as well?
Yes, IRA has in the recent past come up with claims payment guidelines. Sometime back, we had a candid discussion, with insurance players, and we agreed on what should be the minimum benchmark when a client makes a claim. It was generally agreed that claims up to UGX10 million should be settled within ten (10) working days and those between UGX 10 and UGX 50 million should take 15 working days after receipt of a discharge voucher. It is only claims above UGX50 million that should take up to 20 working days and a maximum of a month.
By and large, the industry has respected these claims guidelines. Going forward and when our regulatory software is up and running, later this year, we will be tracking the number of days individual insurance players take to clear claims in real-time and we believe this should further enhance claims efficiency.
We have continued to encourage players to observe these guidelines and good enough many of them are responding through instant claim processing and payment. Ideally, when a vehicle gets an accident on the road, an insurer should be able to send an assessor to the scene of the accident and make a decision there and then and pay. The next day someone should walk out with a cheque or a cash payment whatever the case may be. That is the golden standard we are working towards.
I realize that life, for the last couple of years, has grown faster than general insurance. What would you say are some of the facts on which this faster-than-industry growth is premised?
Actually, in the developed world, life insurance constitutes the biggest percentage of premiums underwritten. However in Uganda, because of our past, where we had very high inflation coupled with tough political times, the life business was affected and most players either quit the life arm of insurance business. By the time I took over as the CEO of IRA, life was contributing about 5 percent, but today, life stretches up to 30 percent.
Life is indeed reclaiming its rightful position mainly because it is about peoples lives. When one buys an endowment policy; a life assurance product, it is protecting that person and the family.
So, people have that sentimental attachment to what life products are and do offer, and that explains why many people want to buy life products. In economies where people have a stable income, you will realize that people even issue monthly standing orders and that explains why life insurance is growing faster.
Before 2011, we also realized that we had companies that were offering both life and non-life, and were putting less emphasis on life business. They had found it easy to sell normal insurance policies like fire policy. The regulatory framework since changed allowing separation and demerger of life and non-life insurance companies. This has since helped to create specialised focus and skills thus the faster growth.
In a nutshell, I can say that our regulatory changes have greatly helped. You may also notice that we are moving from compliance-based supervision to Risk-Based supervision which will create more confidence amongst the insuring public. We are happy to note that the public is becoming aware that in case anything happens, there is a regulator to go to.
We have also encouraged the use of technology to reach more people with less effort and ultimately at a reduced cost. Even as a regulator, we are adopting more and more technological capabilities, for example, the real-time regulatory software. This software is going to be embedded within the systems of each licensed player so that we can monitor whatever goes on in their operations. For example, we will be able to develop daily balance sheets for the entire industry and be able to tell which insurance company is running into problems, and therefore be in position to intervene quickly.
Insurance companies are also embracing innovation, focusing on developing products that meet the needs of people. For example, you may be aware that we have the agriculture insurance consortium, where insurance companies came together to offer agriculture insurance to farmers. Whereas companies realized that there may not be a lot of profit to make, it is a service which ought to be given, to the public. Well aware of the percentage of Ugandans who are in agriculture, we had a candid discussion with insurance operators in Uganda and we agreed to support it.
Luckily, the government committed a subsidy for agriculture insurance every year since 2017, making it affordable for farmers to access and get protection against weather-related risks which would result in financial losses. Under the subsidy, the Government contributes 50 percent of the premiums for small scale farmers and 30 percent for large scale farmers. By the end of 2019, about 82,000 farmers had enrolled for agricultural insurance which is quite a good performance.
There has also been significant innovation in product distribution through mobile money purchasing of especially microinsurance products as well as bancassurance. This has enabled the public to conveniently access insurance services through their banks. You will be interested to know that in 2019 alone, premiums underwritten through bancassurance, moved from UGX26 billion in 2018 to UGX54 billion and we expect 2020 to be even much better, even with the effects of Covid-19.
Generally, we have also witnessed increased consumer confidence as a result of increased public awareness and public education. Consumers getting to appreciate their rights and obligations and many have learnt of the existence of the Complaints Bureau at IRA, where amicable solutions are offered
With all the above fundamentals looking up, how is the industry performing in terms of profitability?
The industry is profitable for many players depending on the volume and or size of the premiums underwritten. When the volumes are not up to the breakeven levels, definitely it gets loss-making, but when companies finally reach that critical mass of premiums underwritten, then they start being profitable. When profitability sets in, given the trends we have seen, it is unlikely that they will go back to loss-making.
Regardless of sustained double-digit industry growth for over a decade, it appears Uganda is still below the regional averages in terms of insurance penetration. What needs to be done- reforms, incentives, etc. to make sure insurance uptake as a portion of the population and GDP grows significantly?
Yes, there are many reforms which are required, but as I have already said, the Insurance Act, 2017, ushered in several reforms, some of which we have not even started implementing because the regulations to operationalize these reforms have delayed. We expect them to come out, hopefully by the end of this month. When we enhance and implement those reforms, we expect a turnaround, on the penetration levels.
We are also hopeful that if other existing laws are fully enforced like the Worker’s Compensation Policy which is mandatory by employers to provide for all employees, then the penetration levels will improve. The law gives the mandate to the Ministry of Gender, Labour & Social Development and we are in discussion with stakeholders in and under the ministry to ensure that we have full implementation and enforcement.
We also have the Motor Third Party Insurance which has had a number of limitations that have been recognized and we have started on fixing them by overhauling the responsible Act. We are still in discussions with the Ministry of Finance, Planning and Economic Development to the Motor Third Party Act amended and address the challenges it is currently presenting to the general public.
However, we also require other new laws like the proposed National Health Insurance Scheme. In those countries where penetration levels are at one percent and above, there is a compulsory health insurance schemes operating and enabling people to access health services.
So in our context, if the National Health Insurance Scheme which is currently in Parliament is passed today, in a fortnight, insurance penetration levels in Uganda will be 2.5 percent and above. The benefits the scheme comes with will definitely help to improve the penetration levels in the country.
Lastly, we are still lobbying Government to support the National Insurance Policy which will inform the need to have government properties and assets insured. When this is done, the insurance penetration levels will still go up to between 3-5 percent.
What does it mean for insurance penetration levels to go up- as high as 5 percent? Why is it important? Maybe if the other authorities in powers don’t understand it and if they did, probably we would see the legislation process improve.
Insurance penetration means the contribution of the insurance industry to a country’s Gross Domestic Product (GDP).
To get this, you get gross written premiums, divided by the GDP base, multiplied by 100. The higher the penetration means the contribution of the industry to an economy is vital if the penetration levels are high it means that the government is getting a lot more revenue in taxes, there are more jobs, improved household incomes and higher standards of living. It would, therefore, mean that the industry can be relied upon more in terms of domestic revenue mobilization and sustainability.
Specifically, for life insurance, you are also looking at long term savings mobilization, making Uganda more self-reliant in terms of domestic savings. The higher the domestic savings are the more impact that is created on the cost of money vs the availability of a big pool of domestically mobilized savings in our financial system. This further means that businesses can borrow at substantially lower rates thus becoming more competitive. In short, a thriving insurance services industry is an indispensable engine of economic growth for every economy.
Uganda’s financial services sector, insurance inclusive is largely dominated by foreign-owned companies. As you seek to grow the depth and breadth of insurance penetration, what are you doing to ensure that more and more Ugandans benefit from this growth?
Our understanding of local content is ensuring that more and more of the benefits coming from the insurance industry are enjoyed by residents or citizens of Uganda. There are many deliberate efforts we are undertaking to ensure that Ugandans benefit from the growth in the insurance sector.
For example, in 2013, we issued guidance on skills transfer especially for top positions within the industry. We guided that where the top executive is a non-Ugandan, there should be deliberate efforts to ensure that those below, especially the number two, is a Ugandan to be able to learn and study the company’s operations. I am happy to note that since we started this conversation, there has been registered success stories. We have witnessed big foreign insurance companies giving the mantle to Ugandans as Chief Executives and the companies are doing well amidst stiff competition.
Secondly, we also look at local content in the context of what portion of underwritten premiums is retained locally. In the past, some insurance companies would just offload whatever came to them back to their mother companies outside Uganda, but we stopped that.
Today, an insurance company has to exhaust the local capacity before anything is taken to a foreign insurer. In such cases, written authorization and clearance must be provided by the Regulator. This was a deliberate move aimed at reducing capital flight. In addition, because of the requirement to exhaust local capacity companies are now considering starting operations in Uganda. This is helping create jobs, increase domestic revenue thus contributing to the economic development of the country.
Previously, Ugandan traders have been buying marine insurance from the countries of origin of their imports. We have worked with various stakeholders like the Uganda Revenue Authority (URA) to ensure that all imported goods are insured by a locally registered and licensed insurance company as required by law. There is, therefore, no more reason for insurance companies to quote for goods on a C.I.F (Cost Insurance and Freight) basis. We are discarding CIF.
This will, therefore, mean, that the premiums which Ugandan importers are going to be paying will substantially reduce but also the process of claims will become easier. This is going to increase the volumes of business underwritten in Uganda thereby improving the premiums underwritten and penetration levels increasing too.
Some of these laws have been around for some time, like the one on compulsory insurance of all risks resident in Uganda by Ugandan companies. How are you going to enforce them, this time round? What has or will change?
With the Electronic Single Window at the Uganda Revenue Authority, importers shall be able to buy insurance from Uganda, monitor their imports locally and will then be automatically cleared by URA. Currently, importers with goods insured outside Uganda were receiving a surcharge of 1.5 percent yet marine insurance is about 0.6 percent.
We will have continuous engagement with importers to show them what they are missing and the impact on tax mobilization as well. We will make them understand that it is not only easier but cheaper as well. We are mobilizing all the relevant stakeholders- URA, Uganda Insurers Association, the Shippers Council, the Uganda Clearing and Forwarding Association, Uganda Manufacturers Association (UMA), Kampala City Traders Association and Ministry of Finance, etc.
This was supposed to be rolled out by the 1st of July 2020 but was delayed by COVID-19. We have now agreed with URA that implementation shouldn’t go beyond October 2020. We are using this period to ensure that we do the test runs.
For oil and gas, the regulations are ready and we are hoping that by the end of this month we should be sending them to the Ministry of Finance, Planning and Economic Development. That process should take a maximum of three months from September 2020. Hopefully, by the end of this year, we should have these regulations out.
COVID-19 has not spared any sector of the economy. We are told services sectors have been most hurt. How has the insurance sector been impacted?
COVID-19 has impacted us in many ways but starting with the positive ones, this has been a lesson to us that business can be done remotely and not necessarily from offices.
So we are encouraging insurance players and all businessmen to think of different ways of doing business away from the traditional ways. We need new and up to date methods to survive. Secondly, COVID-19 has taught us that without technology, without proper investment in digital platforms, businesses may not survive.
However, COVID-19 has affected people’s disposable incomes and with low disposable incomes, buying insurance will also be affected. Because of COVID-19, the government has realigned its priorities and this has affected infrastructure projects, donor funding projects too, have been affected; all which contribute greatly to the sector performance.
Definitely, the extended lockdown of borders and airports has affected premiums generated from travel insurance. The closure of schools is also bound to affect the performance of education policies.
Given that some players, especially the new ones that are yet to get profitable and then the projected negative impact of COVID-19, would you say the sector is well-capitalized to withstand these shocks?
The industry is solid enough. Very, very solid. I told you we had already started monitoring Capital Adequacy Ratios as part of the transition from compliance-based to Risk-Based supervision. Many of the companies are above 200 percent which is the statutory level of Capital Adequacy Ratios. Even those which are about 150 percent, we have given them higher targets for 2020 & 2021. However, we shall not be surprised if there are some mergers and takeovers but these should be to a limited extent.
IRA is developing a multistoried home in the city centre, yet some critics say this may be wasteful expenditure and may starve the private sector of rental income. What was the justification behind this huge investment?
You may be aware that government, about 3 years ago, advised agencies to consider options of building their own homes. As strategic thinkers, we started mobilizing resources to put up our own home, because, without a home, sustainability becomes a problem, and also without your home, even visibility is an issue. So to address all those challenges, we started developing our home at Plot 6 Lumumba Avenue, near Rwenzori Courts. It is a 14-story building with two parking levels and 12 lettable floors. We are hopeful that it will be ready by January 2021. We are excited and looking forward to seeing that project come to a conclusion.