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Slow insurance growth in Uganda

Ibrahim Kaddunabbi and Miriam Magala

Slow insurance growth, but Industry executives expect business to pick up

Kampala, Uganda| Isaac Khisa| Uganda insurers recorded a 3.6% growth in premiums in 2016, their slowest growth rate in five years, citing harsh economic environment, slow implementation of infrastructural projects and reduced private sector credit.

Full year industry performance released on June 08 by the Insurance Regulatory Authority of Uganda (IRA) shows that individuals and businesses spent Shs634 billion on buying insurance in 2016 compared with Shs611 billion in 2015 and Shs502.65 billion in 2014. In 2013, the insurance industry registered Shs463 billion compared with Shs351.23bn in the preceding year.

The 2016 revenue represents a mere 3.6% growth in premiums last year compared with 21% in 2015, 8% in 2014 and 31% in 2013.

Ibrahim Kaddunabbi Lubega, the chief executive officer at IRA said non-life insurance business continued to dominate the industry in terms of premiums underwritten with 70.9%, followed up with 20.9% for life and 8.2% for the Health Membership Organisation.

He attributed the slowdown in the insurance growth to a combination of factors including harsh economic environment that was experienced last year. He noted the subdued growth of Uganda’s economy arising from among other things slow growth in the country’s trading export partners-Europe, China and South Sudan, and increasing stringent conditions for borrowing occasioned by worsening quality of loans has reduced private sector credit.

He also cited low implementation of infrastructural developments and the effects of the February 2016 general elections as the reasons that led to low demand for insurance services as investors held back their investment plans.

With regard to claims, the industry recorded an increase in gross claims paid from Shs213bn in 2015 to Shs259.9 billion, representing a 21.5% growth.  In 2014, the insurance industry paid Shs184 billion in claims compared with Shs140bn in 2013 and Shs111bn in 2012.

Similarly, net asset base also increased to Shs407 billion  last year compared with Shs373 billion in 2015 and Shs354.9 billion in 2014 signifying increasing potential to handle insurance risks locally and also provide adequate protection to the insuring population.

In 2013, the industry’s net asset base stood at Shs274 billion representing a 20.7% growth compared with the previous year.

The country’s insurance penetration – all the money spent on buying insurance remained at equivalent to less than 1% of the economy as majority of the population do not have insurance covers.  At this level, it is the lowest in the East African region. Kenya’s insurance penetration now stands at 3.4%, Tanzania, 2.3% in Tanzania, and Rwanda 1%.  The average penetration for Africa is 6%.

Uganda’s insurance industry currently has 29 insurance companies; including 21 firms for non-life general insurance and 8 firms for life assurance business, and one re-insurer.

There are also six Health Membership Organisations (HMOs), 35 insurance brokerage firms, one re-insurance brokerage, and 21 loss assessing entities.

The industry hopes to register growth in business this year riding on the planned roll out of banc assurance, growth in the uptake of agriculture insurance products and implementation of infrastructural projects especially in the oil rich Albertine region a head of oil production slated for 2020.

According to Uganda Insurers Association, the industry is expected to register between 10-12% growth in premiums this year compared with 2016.

“With a supportive macro-economy, relatively a better progress is expected in 2017,” Kaddunabbi said. He revealed that banc assurance is expected to be rollout next month subject to the approvals of regulations now with the First Parliamentary Council.

Also, the government has once again earmarked Shs5 billion in the next financial year towards continued implementation of the agriculture insurance product dubbed `Kungula Insurance’ as a pilot, to further subsidise agriculture insurance premiums for both small and large scale farmers.  This is in addition to Shs5 billion released last year.

Launched in 2014 by a consortium of six insurance firms, Kungula Insurance presently covers 123,000 farmers countrywide, with Shs1.4 billion dispatched to the insurance firms as subsidies.

Another area expected to see growth is Motor Third Party. In order to ensure that the motor vehicle owners comply with the Motor Third Party, the national budget 2017/18 has provided that that product would be part of the mandatory annual vehicle inspection being carried out by SGS.

Miriam Magala, the chief executive officer of Uganda Insurer’s Association, says about  60% of the vehicles on the Ugandan roads are estimated not to have  Motor Third Party insurance, and slowing the  growth in motor vehicle insurance premiums.

The Swiss company, SGS, on behalf of the government is carrying out mandatory vehicle inspection to determine the technical condition of motor vehicles.

Magala said the government’s plan to empower locally licenced insurance firms to issue all policies relating to domestic marine cargo insurance will also see the industry record an increase in premiums from marine insurance covers from the current annual average of Shs27 billion to Shs60 billion.

She also said that the insurers plan to continue with aggressive marketing and improvements in customer service to fasten uptake of insurance.

Growth in Uganda’s insurance premiums

Year 2011 2012 2013 2014 2015 2016
Gross Premiums Underwritten (Shs bns) 296.83 351.23 463 502.65 611.13 634

Source: IRA

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