Microinsurance, new distribution methods to boost penetration

Nov 25, 2018

According to the Insurance Regulatory Authority’s (IRA) most recent annual report for 2017, insurance penetration in Uganda has improved from 0.73% as a measure of gross domestic product to 0.81%.

 A combination of micro-insurance, technology, education and better customer care could be the magic formula to double insurance coverage in Uganda, a report says.
A study by Making Finance Work for Africa, titled: "Micro-insurance in Uganda" has tipped health microinsurance to boost the penetration of insurance in Uganda, if the country does not go ahead with proposals for a mandatory national health insurance system.
"Uganda has a relatively undeveloped insurance market and there is clear potential for expansion, particularly through microinsurance. Heath microinsurance is still a nascent market in Uganda," the report says.
"Consideration will need to be given to the sale of insurance through other non-traditional methods such as the agricultural value chain, mobile network operators, and village and community leaders,
"However, all carry legal and regulatory implications…successful health insurance strategies are those that are flexible enough to manage the ever-changing relationships between access, cost and quality of medical care," the report added.
According to the Insurance Regulatory Authority's (IRA) most recent annual report for 2017, insurance penetration in Uganda has improved from 0.73% as a measure of gross domestic product to 0.81%.
The IRA plans on improving penetration to 1.4% by 2022 according to Dr Isaac Nkote Nabeta, the IRA chairman.  Uganda's insurance penetration and insurance density have stagnated at 0.81% and $5.3 respectively.
This is against the African average of 2.96% and $54 respectively. Dr Nabeta said that the low penetration and density represents a big opportunity for the insurance industry in Uganda to re-engineer itself and tap into the untapped markets.
He pointed out that the biggest hindrance to growth at the moment remains to regain public trust due to low claims ratios, particularly for statutory third party motor claims.
"Entrenching reputation for trustworthiness will be everybody's focus if we are to meaningfully progress. This will only be achieved through creating robust governance structures that encompass culture, people and processes, and practices that embed the principles of good governance in everyday operations of every insurance player," Dr Nabeta said.  
Stellar improvement in annual insurance indicators
During 2017, industry gross premium income growth hit sh728b up from sh634b the year before. At the same time, gross claims paid rose to sh288b in 2017 from sh261b in 2016.
Meanwhile, brokers' commission income performed exceptionally well with a marked increase from sh33.2b to sh40.14b in 2016 and 2017 respectively while the Industry Net Assets grew from sh411b to sh475b in 2017.
The Retention Ratio results were mixed with the life retention ratio increasing from 84.20% in 2016 to 86.17% in 2017 compared to Non-life that reduced marginally from 58.88% to 58.72%. According to the analysis of the IRA's financial reports, the increase in claims payouts impacted on the underwriting results.
Alhaj Kaddunabbi Ibrahim Lubega, the IRA Chief Executive Officer noted that most industry players remained on a positive growth trajectory in 2017 albeit a general decline in profitability.
"Whereas growth remained positive for most classes of business over the reporting period, the evolving dynamics and expectations coupled with rapidly changing technology and consumer demands continue to create both uncertainty and opportunity," he observed.
In order to improve industry oversight and fortunes, Lubega said that the regulator has adopted risk-based supervision. He explained that new supervision model will enable the regulator to identify and assess the most critical risks that face each company, the Company's management of those risks and the Company's financial vulnerability to potential adverse experience.
Since a rising tide lifts all boats, Lubega said he is optimistic of further industry growth given expectations of faster economic growth due to sustained investment in public infrastructure, steady recovery in private sector credit, favourable weather conditions, increase in Foreign Direct Investment (FDI) imply an increase in the potential insurable assets.
According to the World Bank, Uganda's economy is expected to grow at a cool 6.1% up from 3.9% the year before with some major investments in Uganda's oil and gas sector, power dams and major road projects.
"At a micro level, enhanced distributive spread ushered in by the onset of Bancassurance is expected to impact on the sector due to its inherent potential to reach and also appeal to wider consumer bases," Lubega said, adding that companies that leverage technology and invest in innovative products and research will reap bountifully.
Bancassurance rakes in sh9.3b for the insurance sector
Bancassurance - the sale of insurance products through banks - has started bolstering the insurance industry revenue, barely a year since its operationalisation as more Ugandans pick interest in the new distribution channel.
The Insurance Regulatory Authority (IRA) indicates that out of the sh410b underwritten in gross premiums in the first half of the year, bancassurance contributed sh9.3b, from the nine banks that were offering the service during the period.
This was revealed by Protazio Sande, the Assistant Director of Research & Market Development at IRA during the event to license Opportunity bank, as the 14thbancassurance agent at IRA offices in Kampala on Tuesday. Kenya Commercial Bank (KCB) also received its bancassurance license on the same day.
Out of the sh9.3b generated through bancassurance, life business contributed sh7.5b while the general business line generated sh1.8b.
Sande said that bancassurance is expected to give the life insurance business a huge boost, given that banks have a wealth of information about people and are able to tell who needs a life insurance policy and who can afford.
He said that the growth of the life business line mainly emanates from the sale of credit life, which is in banks' line of business.
Generally, bancassurance saw an 11% growth in total underwritten premiums from sh357b in the first half of 2017 to sh410b in the same period this year.
The barrier to banks' entry into the insurance market was lifted in early 2016, following the approval of the Financial Institutions Amendment Act, which among others provided for bancassurance.
The new delivery channel is not only facilitating increased access to insurance products but is also offering banks a revenue cushion from commission fees generated from the sale of the products.
Profitable globally
The IRA chief executive officer Ibrahim Kaddunabbi Lubega said bancassurance is expected to give the much-needed support to boost penetration.
He added that the insurance sector depends heavily on banks' wide network, technological advancement and innovativeness to sell insurance and support growth.
Bancassurance has emerged to be the most profitable insurance distribution channel, compared to the traditional channels of using insurance brokers and agents, globally.
In countries like China, South Africa, Ivory Coast, Kenya and Mozambique, bancassurance contributes an average of 60% of total insurance premiums.
The Opportunity Bank chief financial officer Owen Amanya said the institution will make the necessary investments required to support insurance penetration through bancassurance across its country-wide network.
He added that the bank intends to rollout micro-insurance products and increasingly use technology to take both banking and insurance services closer to the people.
Opportunity bank partnered with UAP OldMutual (Life and General), Insurance Company of East Africa - ICEA (Life and General), Sanlam (Life and General) Alliance Africa General, Britam and National Insurance Corporation.
The KCB managing director Joram Kiarie said the partnership will boost insurance penetration using its network of branches countrywide.
"KCB Bank joins the insurance intermediaries as professional bancassurance agent to increase the momentum of insurance uptake in the country. The Bank will lead sensitisation to the existing and prospect customer base about the benefits of taking up insurance and services offered," he stated.
KCB will work with ICEA (Life and General), Jubilee Life Assurance and Britam General, among others.
Relevance of agents
Despite the growing interest of buying insurance through banks, the UAP Old Mutual managing director, Anthony Githuka said insurance agents still have a big role to play, especially when it comes to offering advisory services.
There were fears from insurance agents and brokers that bancassurance will make them redundant.
There are currently over 2,000 agents, according to Kaddunabbi. He said that IRA plans to license more, especially travel and mobile money agents.
"Agents are still relevant; they are foot soldiers who must explain to potential insurance buyers why they should buy a particular product," he said.
He further said that the revenues generated from the bancassurance channel are expected to triple by the end of the year, given the increasing number of banks selling insurance.

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