Domestic marine cargo covers could boost insurance market

A paper presented by L.P Buol, the then chief special programme on insurance at UNCTAD, during the Federation of Afro-Asian insurers and re-insurers, in their sixth siting in Nairobi, Kenya, in 1979, states that domestic insurers lose a substantial amount of business to foreign insurers because the volume of foreign trade insurance business tends to be very large in most developing countries compared with the volume of business generated by other classes of insurance in their domestic market.    

“It is no secret that in developing countries (such as Uganda), out of all insurance classes, marine cargo, premium wise, is the most promising class of business,” the paper states.

“Its close connection with import and export trade, which represents the fastest exporting sector of the national economy, makes marine cargo particularly important.”

The paper further states that while domestic insurers tend to rely on domestic businesses for growth, their performance is usually minimal owing to the fact that majority of the population is in rural areas, have low per capital income and have limited awareness.

Another argument in favour of insuring marine cargo locally, is the savings in foreign exchange which domestic cover of foreign trade risks might bring about, the paper adds.

However, the paper states developing countries need to be cautious in dealing with exports as importers may prefer to deal with their local insurers back home.

UNCTAD at its third session, affirmed that developing countries should take steps to enable their domestic insurance markets to cover marine cargo insurance markets – taking into account their national economic interests as well as the insured interests – the insurance operations generated by their economic activities, including their foreign trade as far as it is technically feasible.

Insurers’ reaction

Allan Mafabi, CEO of Britam, and the chairperson of Uganda Insurers Association said the new development is welcome as it will facilitate growth of the country’s insurance sector whose penetration has remained low.

Uganda’s insurance penetration stands at less than 1%, making it one of the lowest in the East African region. Kenya’s insurance penetration stands at approximately 2.7%, Tanzania’s at 2.3% and Rwanda at 1%.

On the other hand, Uganda’s gross underwritten premiums have increased from Shs463bn in 2013 to Shs856bn in 2018.

Alex Mbonye, the CEO at the Uganda Shippers Council said they welcome the new initiative due to the fact that it will it will ease importers trouble of chasing for claims abroad.

“We are also optimistic that the premiums will remain within our economy and thus help boost the value of our local currency,” he said.

Meanwhile, Protazio Sande, the Director Research and Market Development at the IRA told The Independent  that the insurance industry has to educate prospective  customers prior to selling them any  insurance services including Marine Cargo Insurance services  so that they purchase their preferred products and services  based on clear knowledge.

He said educating customers will minimise incidences of insurance firms claiming that their customer did not understand their obligations and thus deny them compensation in the unexpected loss.

“If we continue doing the same thing and expect different results, then, definitely, there’s something wrong with that. We must do things differently,” Sande said. “We need to be innovative along the entire insurance value chain – from product development to claims payment.”

He added, “The customers that the industry is dealing with are not interested in listening to anything else except fast claims payment.”

Sande stressed that coming up with various innovations such as micro insurance, bancassurance, and tech-enabled insurance products without educating the masses on how to go about it will not boost the country’s insurance industry.

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