‘No premium, no insurance cover’ regulation to start in 2019

The move could see a slight reduction in insurance premiums in the short run

Kampala, Uganda | ISAAC KHISA | Uganda’s insurance companies, will in effect from January, 2019, implement the ‘No premium, No cover’ regulation, as part of the new measures intended to reform the local industry.

This means that henceforth, insurance companies have to collect premiums upfront before providing insurance cover for all classes of insurance. The insurance companies will no longer be required to sell insurance products on credit to customers.

This is neither a creation of the insurers or the regulator, Insurance Regulatory Authority of Uganda (IRA-U). It is a statutory provision in the Insurance Act 2017, whose implementation takes effect next month.

Section 63 (1) of the Act requires that all insurance policy holders pay in full all the premiums payable under the insurance contract on or before the date of inception of the policy or renewal of the policy.

Ibrahim Kaddunabbi Lubega, the chief executive officer at the IRA told guests during the industry chief executive officer’s breakfast meeting at Kampala Serena Hotel on Nov. 29, that the new move will ensure that insurance firms have cash at all times to meet their obligations.

“Once cash and carry is operationalised and implemented strictly, it means insurance companies will have money to pay for claims, invest in marketing strategies and in innovation which is the business of insurance,” Kaddunabbi said.

“If one buys a policy and does not pay it means he or she has not availed resources to the insurance company to invest and pay the unlucky few.”

He said insurance firms have outstanding premiums to the tune of Shs 200bn, a scenario he says, is unacceptable as it disables insurance firms from prompt settlement of claims such as medical bills.

The regulation also requires that the insuring public pays all their premiums, cash or cheque, directly to the insurance companies or Health Membership Organisation and not to the insurance broker or insurance agent as the case has been before.

Deepak Pandey, the CEO Jubilee insurance said they welcome the new decision as it will strengthen the industry’s financial position.

“Prompt payment of premiums will help insurance firms have enough resources to invest and be able to meet their obligations,” he said.

He said countries such as Rwanda and Tanzania have implemented cash and carry regulations and the new initiative should also work in Uganda.

Other measures contained in the Act include; perpetual licensing of insurance firms, in that insurers will no longer have to pay for annual licenses but the issued license shall remain in force until it is suspended, varied or revoked by the regulator.

Previously, insurers had to renew their licences every year. However, intermediaries such as insurance brokers, loss assessors, among others, shall be issued with licences for two years and may be renewed for another two years.

Similarly, there will be implementation of Risk Based Supervision where the insurance firm’s capital will always be re-adjusted at all times based on the risk profile or businesses that a particular insurer holds.

In the previous regime, compliance involved checking for and enforcing observance of set rules in form of regulations or policies which were mainly applicable during licensing.

Insurance premiums up 12.7%

Meanwhile, the country’s insurance industry is in an upbeat mood as it recorded a 12.7% growth in premiums for the nine months ending September, thanks to an increase in government investment in infrastructure, uptake of agriculture insurance and general improvement in the economy.

A statement on the financial performance of the industry released by the IRA shows that the local industry recorded an increase in premiums from Shs 566.4bn in 2017 to Shs 658.4bn in 2018.

Non-life gross written premiums increased from Shs 404bn to Shs 452.7bn while life gross written premiums increased from Shs 120bn to Shs 150.9bn during the same period under review.

Similarly, Health Membership Organisations recorded an increase in insurance premiums from Shs 42bn to Shs 54.79bn. Overall, the industry’s net premium earned a recorded 21.5% growth in premiums to Shs 410.8bn.

Kaddunabbi said the increase in government’s infrastructure such as Karuma, Isimba, and other projects helped the industry record a surge in insurance premiums.

“Increase in the uptake of agriculture insurance also boosted the premium growth,” he said adding that 24,407 farmers at a total premium of Shs 5.98bn and a government subsidy contribution of Shs. 3.45bn enroled for the agriculture insurance during the period under review.

In the period  January, 2017, and September, 2018, the total number of farmers enrolled on the scheme stood at  70,111 with the government contribution to the subsidy amounting to Shs. 6.38bn.

Insurers, however, said there is need for the regulator to ensure that a good portion of insurance services to the prospective oil and gas industry is insured locally.

Allan Mafabi, the chairperson of Uganda Insurers Association and the CEO, Britam Insurance, said  a number of investments are already taking shape in the sector with insurance covers already taken with foreign insurance firms.

In response, Kaddunabbi said they are still engaging with various stakeholders within and without the country on how to tap into the oil and gas  industruy

“We are in engagement with the ministry of energy officials, Solicitor General, and I have got the impression that all of them are willing to comply,” he said.

Fact box

IRA-U licensed 29 Insurance companies (20 non-life or general insurance companies and nine Life companies), one Micro Insurance Company, one National Reinsurance Company, six HMO’s, 35 Insurance brokers and 21 Loss Assessors for 2018.