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Fire outbreaks: Insurers divided on insuring informal businesses

By Eriasa S. Mukiibi

Joseph Musoke is a distressed man. On Tuesday July 31, he woke up to the news that all the merchandise in his shop, which took him eleven years to build, had evaporated in a plume of smoke following the fire that gutted Kisekka Market that fateful day.

In 1999, shortly after sitting for his Senior Four final examinations, Musoke ignored his mother’s advice to continue with school and stealthily left his parents’ home in Luwero for the city to pursue his dream of creating a successful business. On reaching Kisekka market, with the help of a friend who had left the village earlier, Musoke’s first job was at a car-washing bay.

He says he learnt from his friends to use his newfound job to make in-roads into the sale of auto parts, a job he revered very much. “As I washed cars, I checked them for parts and accessories that needed to be replaced and persuaded my clients to buy them,” he recounts. He would then run to the next shop and pick the required parts, off which he usually made a difference.

After six months, he dropped the car-washing job and concentrated on dealing in auto parts, selling for other people at first. By 2007, he had accumulated enough capital to acquire his own lock-up, and he never turned back. He now imports auto parts and accessories from Japan and Dubai, and he has built his own house in Nansana, a Kampala suburb, and bought a car.

By the time his lock-up (N0. U074) caught fire; Musoke estimates that it had merchandise worth between Shs 60 and 70 million.

However, he is not about to start processing compensation from his insurer because he doesn’t have none. In fact, none of his other colleagues was insured against the fire either. The only insurance fees he has ever paid are to cover his merchandise in transit, which he says is mandatory. The world of insurance is simply not known to him, and Musoke admits it. He says he hears that insurance companies don’t compensate their clients even when an event they’re insured against occurs.

Moreover, even if he had wanted to cover his merchandise against fire, insurance companies would probably decline to take him onboard.

Robert Musiitwa, the business development manager at Excel Insurance Co., says that any insurance firm would find it difficult to cover a business that is located in a crowded place with high chances of catching fire like most of the businesses in downtown Kampala.

Most downtown businesses are in congested places with high risk of catching fire. On February 5, 2009, some 3000 stalls in Park Yard Market near Nakivubo Stadium caught fire, leading to loss of merchandise estimated to be worth billions of shillings, belonging to 25,000 traders.

Worse still, adds Musiitwa, most of these businesses don’t do bookkeeping, making it almost impossible to ascertain their worth. He wonders: “How could an insurance company cover a business whose worth it can’t ascertain?” Insurance premiums “” fees payable to insurance companies for the cover “” are calculated based on the worth of the asset being insured.

A senior officer in a top Kampala insurance company who was not comfortable with his name appearing in the press told The Independent that his company would most probably turn down an opportunity to insure businesses located in unplanned and congested markets like Kisekka.

“Before we insure a business or premises against fire, burglary or any other disaster, we carry out an evaluation of the risk involved,” he said. “Where there is a very high risk of fire outbreak, or where fire fighters would encounter clear difficulties putting out a fire in case it broke out, then we would most likely decline the opportunity to insure such property.”

The source emphasized that issues like access to premises by fire fighters in the event of fire outbreaks, and whether a property’s neighboring premises are susceptible to fire, which would in the end engulf the insured premises, are examined before a decision to insure is taken. Insurance being a business, he explains, it would be foolhardy to cover properties against risks that have a very high likelihood of occurring, otherwise the firm’s profit margin would be wiped out via compensation.

But Godfrey Buyondo, the Technical Manager at Lion Assurance, believes there can be a way around these problems. He says his firm has tried to engage KACITA, the association that brings together Kampala traders, with the hope of enlisting these traders.

“We are risk takers,” Buyondo says in response to whether his firm would close its eyes to the risks involved in insuring such businesses. He is confident that the risk can be managed through sensitization so that traders can take the requisite precautions against fire and other disasters.

The fact that these traders don’t keep books of accounts individually, he says, can be waived if they came as an association and insured their businesses collectively. Each trader’s worth would be estimated and aggregated to make a formidable insurable sum. He says they have encouraged KACITA to mobilise the traders so they could be sensitized on how to prevent fire outbreaks and manage other risks. Their businesses would be insured at a discounted premium rate, says Buyondo, since they would be doing it in a group.

Simon Peter Lubwama, the PRO at Kisekka Market, told The Independent that the Kisekka fire destroyed merchandise worth an estimated shs2.9 billion. 98 semi-permanent lock-ups, from number U001 to U098, and 13 temporary ones, were wiped out in the fire. Over 30 lock-ups were saved just in time.

An ordinary fire insurance policy usually covers the insured against losses resulting from natural happenings like earthquakes, lightening and storms, fires, and impact incidents “” loss resulting from incidents like a motor vehicle crushing into the premises of an insured business. However, it doesn’t usually cover the insured against destruction resulting from war.

In insurance, there are warranties “” conditions that must be fulfilled before insurance cover is extended. For the case of fire, the presence of fire prevention and extinguishing mechanisms is usually a prerequisite for insurance and eventual compensation in case the risk insured against occurs. There are also exceptions. For example, self-inflicted arson “” a situation where one sets their own premises on fire to claim compensation, cannot be a ground for compensation

Premiums payable are also dependent on the risk involved, putting businesses located in highly congested areas in a position where they would need to pay prohibitive premiums in case they were insured. Even if such a business carried out bookkeeping, it would still have to pay higher premiums, except if they aggregated their sums.

A stationary shop located near a shop selling highly flammable oils, for example, would pay a higher premium to insure against fire than one that is located near a shop selling metals. Otherwise, insurance premiums are usually much lower than one percent of the sum insured “” the computed value of the property the insurance policy covers.

Fire is a serious risk in business that must be insured against. There are no aggregated figures about fire outbreaks in Uganda and their impact on businesses. However, it is safe to state the losses incurred yearly are immense, especially in a country where little attention is paid to precautionary measures like installing emergency firefighting equipment.

In the United States, a country with much better physical planning and anti-fire awareness than Uganda, there were 1.6 million fire outbreaks reported in 2006, resulting in $11.3 billion in direct property loss.

Businesses in congested areas like Kikuubo, a strip of shops dealing in general merchandise at the heart of the city, have much higher capital intensity and turnover than many businesses located along Kampala Road and other more organized areas. However, they remain uninsured partly because their owners are indifferent to insurance, but also because they are run informally with no proper bookkeeping and their locations wouldn’t attract interest from insurance firms.

“We have insured premises worth much less than most shops in Kikuubo or lock-ups in Kisekka Market,” said the insurance officer who declined to be named. He added that following the recent spate of fire outbreaks in and around Kampala, there has been a noticeable increase in the number of businesses signing up for fire insurance, but he couldn’t recall a time when he was approached by a businessperson from any of these markets for fire insurance.

Luckily for Musoke, he is not wasting time regretting the compensation opportunity he lost by not insuring his business against fire. He is resolute, only focusing on rebuilding his business. He says he has some merchandise in transit and he wants to rebuild his lock-up and resume business immediately.

He is also receiving help from the social insurance mechanism, whereby friends and the community contribute to his recovery; Musoke says he has received at least Shs five million so far from sympathizers. FDC President Kizza Besigye delivered 100 bags of cement to see to the rebuilding of the market, and traders in Nakasero Market contributed another 20 bags, with traders just opposite Kisekka Market contributing four bags. Lubwama, the Kisekka Market PRO, says this cement shall be enough to rebuild the destroyed stalls since they are going to build semi-permanent structures.

However, unlike modern insurance that goes through the principle of indemnity””ensuring that the insured who has suffered damage is restored to his former state””his friends and sympathizers may not be in position to contribute enough resources to restore Musoke to his previous state.


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