Legal reforms behind Uganda’s insurance boom

The sector has also benefitted from a strong regulator

Kampala, Uganda | ISAAC KHISA | Uganda’s insurance sector is more than seven decades old but momentous growth has only been recorded in the last 10 years as multinational and local insurers scramble for a pie of the emerging market.

Big insurers such as German’s Allianz, Mauritius-based Mauritius Union Assurance Ltd, British-based Prudential Assurance Ltd, Kenya’s GA Insurance, and South Africa’s Sanlam and Old Mutual insurance companies with a mix of local players like Statewide Insurance Corporation (SWICO) and Uganda Reinsurance Company (Uganda Re) have set up a presence in Kampala with tentacles stretching to the rest of East Africa and beyond.

The insurers are seeking to tap into the growing middle class, the government’s investment in infrastructural services such as roads, hydropower dams, airports, and prospects in the fledgling oil and gas sector.

Latest statistics from the Insurance Regulatory Authority of Uganda, the country’s sector regulator, show that gross written premiums for both non-life and life have more than quadrupled over the past decade from merely Shs 240 billion in 2010 to 1.18trillion in 2021.

The life insurance business’ contribution to the gross written premiums has more than tripled from merely 10% to 33% during the same period under review, signaling increasing customer appetite for insurance policies, especially education, whole life insurance, and health among others.

Equally, insurance penetration has increased from 0.65% in 2010 to 0.8% in 2021 while insurance density has increased from Shs7, 278 to Shs 28, 059 during the same period. Claims pay-out increased from Shs 82.14 billion in 2010 to Shs 564.79 billion in 2021, representing a nearly 600% growth.

Uganda’s insurance sector started in 1948 with the establishment of the first local insurance company, East Africa General, but it failed to pick up until 2010. Customers and the general public then believed that insurers were untrusted and did not honor claims payments. But that has since changed.

Followers of the sector told The Independent that legal reforms, strong supervision and regulation, and the setting of the minimum premiums below which insurers should not sell their policies to prospective customers explain the recent sector growth.

“The constant review of the relevant laws and a strong regulator who can listen to both insurers and customer’s complaints and make feasible decisions has contributed to the current growth,” said Maurice Amogola, a former Chief Executive Officer of Minet, an insurance broker in Uganda.

Amogola cites the Insurance (Amendment) Act, 2011, which elevated the then regulator, the Uganda Insurance Commission (UIC) from being a mere department in the Ministry of Finance, Planning and Economic Development to an independent regulator, the Insurance Regulatory Authority of Uganda (IRA).

The Act also necessitated insurers operating both life and non-life insurance businesses as composites to have separate entities in a bid to create and facilitate the growth of the life insurance business. Indeed, the implementation of the Act saw the emergence of 8 life insurance companies, besides 21 non-life insurance companies, with the gross written premiums growing faster than the period before 2010.

Amogola also cites the latest enactment of the Insurance Act of 2017 that enabled the regulator to roll out a new licensing regime known as risk-based supervision as opposed to a compliant-based regime to ensure that insurers have capital at a level adequate to support their insurance business, taking into account the nature, scale, and complexity of their business and risk profile.

He said the law also enabled the regulator to increase insurer’s minimum capital requirements from Shs 1 billion for both non-life and non-life insurers, Shs2.5billion for reinsurers, and Shs 50million for insurance brokers to the current Shs 4billion for non-life, Shs 3billion for life, Shs 10billion for reinsurers and 75million for insurance brokers as a measure to build a strong and vibrant sector to handle bigger risks.

Amogola said the rising incomes, faster growth in industries, and investment in infrastructural facilities, and oil and gas have also fuelled the growth of the sector as investors seek to mitigate any potential risks.

The latest data from Uganda Investment Authority suggest that the east African nation has over 5,000 operational industries in various sectors, with Jinja City, remaining the country’s industrial hub with over 100 industries.

The industrial sector’s contribution to Gross Domestic Product stands at 27.6%; with mining and quarrying contributing 2%, manufacturing at 15.4%, electricity at 1.3%; water at 2.3%, and construction at 6.6%.

“Above all, insurance is built on trust and that has been improving over time. There has also been an increase in public awareness,” Amogola said, citing increased publicity in the mainstream media, posters hanging on Kampala’s street lights, and exhibitions.

Ibrahim Kaddunabbi Lubega, the Chief Executive Officer at IRA told The Independent that Uganda’s insurance sector has evolved over the years driven by strong progress in regulation and supervision, competition, market development, and sector stability.

He said, for instance, that more farmers are now taking on agriculture insurance as they seek to tap into the government premium subsidy that started in FY 2017/18.

“We have also continued to license banks to act as intermediaries under the bancassurance arrangement that seeks to enhance insurance distribution by leveraging on the distribution networks and customer base of the banking institutions,” Kaddunabbi said, adding that business deals that passed through the 21 bancassurance-licensed banks ballooned to Shs103.54 billion premium in 2021. The country’s banks ventured into bancassurance in 2017 riding on the new Financial Institutions Act, 2017.

Kaddunabbi said the sector also plans to ride on savings and credit cooperative societies to sell insurance and thus widen distribution channels. He said the regulator has also set up a Complaints Bureau to receive and handle insurance-related complaints, thus enhancing confidence in the insurance sector. This, IRA notes, is evidenced by a year-on-year increase in the number of reported complaints from 46 reported in 2011 to 142 reported in 2021.

Kaddunabbi said there has also been an increase in innovativeness in the sector and several innovative products and solutions have been brought onto the market over the years. He cites the development of micro-insurance products currently serving populations in the low pyramid and the development of digital platforms in partnership with the Ministry of Works and Transport and traffic police to combat fraud.

Customers speak up

Insurance customers that The Independent spoke to including Shem Sitati, said the regulator’s strong supervision has brought some confidence in the sector.

“I am now a bit confident in the sector because there’s a mechanism for redress in case there’s a disagreement with an insurer,” he said. “I have seen customers who had issues with their insurers and following IRA’s intervention, they have been compensated.”

Sitati, who holds an education insurance policy with one of the country’s insurers, says he wishes to buy other insurance policies in the future in the event that his financial fortune improves.

However, it has been rosy for all the sector players as several firms have closed shop over the years. Metropolitan Life Uganda, which opened shop in 2017 targeting low-income earners with micro-insurance products, voluntarily stopped operation effective this year.

This followed American International Group (AIG), Lion Assurance Companies, and two Health Membership Organizations (HMOs) including the International Air Ambulance that ceased operations in the east African nation in the past 10 years citing several reasons including changes in strategy and stiff competition.

Still more needs to be done

However, Amogola said there’s still a need to encourage the majority of the population to buy insurance so that the cost of insurance policies goes down.

“Insurance is about numbers and the more people buy insurance, the lower the premiums,” he said.

“Insurers like those in the United Kingdom and South Africa need to come up with an innovation where customers can be paying for their insurance covers probably monthly rather than paying a lump sum amount that the customers feel is unaffordable.

However, this also needs trust, and each party honors their obligations.” Amogola said insurers also need to float their shares on the stock market to not only enable the local population to own shares in the company for inclusive growth but also raise capital for expansion into the neighboring countries especially the Democratic Republic of Congo.

He said a strong insurance sector boosts the country’s financial sector enabling the government to borrow funds locally to invest in various projects with the shareholders reaping good returns.

Bright future

Going forward, Kaddunabbi said Uganda’s insurance future is very bright since the Covid-19 pandemic heightened insurance awareness, notably health insurance.

“People now appreciate insurance more than before and this is expected to only improve given that the Insurance Regulatory Authority and industry players are investing heavily in public awareness,” he said, adding that insurers are increasingly adapting to digital channels and self-service arrangements to ease access and enhance customer convenience.

Global insurance players set eyes on Kampala

*German insurer Allianz acquired a majority stake in Jubilee life insurance in Uganda, Burundi, Tanzania, and Mauritius in addition to Kenya whereas Mauritius-based Mauritius Union Assurance and the British-based Prudential acquired Phoenix and Goldstar Life Assurance Ltd, respectively.

*Sanlam Emerging Markets entered the Ugandan market through the acquisition of NIKO insurance in 2013.

*Kenya’s GA insurance acquired Nova Insurance Company Limited as South Africa’s financial services firm Old Mutual plans to acquire a significant stake in UAP Old Mutual Life Assurance Uganda Limited soon.