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Foreign competition threatens indigenous insurance companies

By Patrick Kagenda

After failing to take over the National Insurance Corporation (NIC) in 2005 in the teeth of competition from Nigeria’s Industrial and General Insurance (IGI), the Kenyan firm Apollo Pan African (APA) Insurance has at last made its way on to the Ugandan financial market.

APA, which owns 34% of the Tanzanian firm Reliance Insurance, has been cleared to operate in Uganda by the Central Bank of Uganda after depositing Shs 100 million there, along with another Shs 1 billion in a local commercial bank. It now awaits a certificate from the Uganda Insurance Commission.

APA will be the fifth Kenyan insurance company to expand into Uganda, after Jubilee, UAP, ICEA and Phoenix.

Uganda’s insurance market consists of 13 foreign insurance firms and only eight local ones. In this context, the entry of another foreign, particularly Kenyan, company is drawing a mixed reaction.

‘Uganda is an attraction because it has registered a tremendous growth in market terms,’ says Mr Bernard Obel, assistant commissioner in charge of finance and investment at the Uganda Insurance Commission. He says the sector posted a 25% growth in premiums collected in 2008.

The Ugandan economy has been relatively stable over the last two decades, and foreign companies can take advantage of favourable fiscal and monetary policies, including tax holidays of up to five years. As a result, many foreign financial institutions, particularly from Kenya and west Africa, are investing here.

But the influx of foreigners worries indigenous insurers. Mr John Ssebaana Kizito, chairman of Statewide Insurance Company (SWICO) and a leading local insurer, says foreign firms enjoy unfair advantages over their local counterparts, including reduced exchange rate risk and cross-border business synergies.

‘These people come because of other investments from their country, which they follow to insure,’ says Ssebaana. ‘Kenyan banks in Uganda are all insured by Kenyan insurance companies and no local company can be given any deal. When it comes to re-insurance, they carry all the money outside the country. They can’t say, ‘˜let’s re-insure with a Ugandan company”.

Ssebaana says foreign firms often benefit from the strength of their home currencies, that they repatriate all profits, and reserve all the big posts for their countrymen. ‘These new entrants are not benefiting Uganda but draining it,’ he says.

The SWICO chair wants to see Ugandan laws regarding foreign investments beefed up. ‘The government should do what Kenya does,’ he says. ‘You can’t start a business in that country unless one of the directors in your company is Kenyan.’

But Dr Olli-Pekka Ruuskanen, Chief Executive Officer at the Uganda Insurers Association, says the new entrants will not hurt local insurers. ‘Local companies are capitalised domestically and have no difficulties settling claims,’ he says.

In fact, local companies are partly to blame for the inefficiency in the insurance sector. Indigenous firms have thrived on the small number of players in the financial services sector. Until recently, they have been involved only in the statutory third party insurance for vehicles, and are only now beginning to move into voluntary areas like fire insurance.

Obel says indigenous firms lack experience because the education sector has been lagging behind: ‘The Kenyan market has experience, stamina, marketing potential, resources and a lot of stability – all of which have been lacking in Uganda for many years’.

He says life, medical and health insurance are ripe for exploitation in Uganda, due to the growing middle class demanding a variety of products – including the National Health Bill to be tabled in Parliament.

According to UIC’s 2006 report, up to 400,000 Ugandans have non-life insurance policies, while 1.1 million have life insurance. The most popular form of insurance cover is a group life policy.

Another positive is that an increasing number of Ugandans are coming to understand how the insurance sector works, especially in urban areas. As part of a US $ 3 million Bank of Uganda-funded finance sector education campaign dubbed ‘feel it foundation’, insurance companies plan to travel to rural areas to widen awareness. One particular challenge will be to overcome the wide perception that insurance companies do not compensate clients.

Uganda is the only country in East Africa that doesn’t have a re-insurance company. But with the emergence of the East African Community, Ugandan insurance firms will be increasingly exposed to stiff competition from their counterparts in the region. If they fail to improve their delivery of services, they face a bleak future.


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