Insurance Sector in East Africa. Part 1: Insurance Landscape in Uganda

Photo Credit: Daniel Tausis on Unspash 

Insurance is an agreement that a company takes to provide a guarantee of compensation for loss, damage or illness after paying a specified premium amount. The insured receives an insurance policy that contains the terms, conditions, and circumstances under which compensation is made. The insurance industry in Uganda contains several stakeholders that directly or indirectly contribute to service provision in this sector. Some of the stakeholders include policyholders, insurers, agents, brokers, assessors, and industry associations. This article highlights the history of key developments in insurance, trends, and advantages of insurance.

Insurance Regulatory Authority of Uganda (IRA) established under the Insurance Act, No. 6 of 2017, is the supervisor and regulatory of the insurance in Uganda. Its main objective is to “ensure effective administration, supervision, regulation, and control of the insurance business in the country.” According to a report by IRA, in the late 19th century, insurance was originally written in Uganda by branches of foreign companies of British, America, and India. In 1948, East Africa General was formed as the first local insurance company. In 1964, the National Insurance Corporation (NIC) was formed by the government Act and was 100% owned by the state. In 2005, the government divested 60% of the shareholding in NIC to IGI. And in 2008, the insurance (Investment of paid-up capital and insurance funds) regulations were enacted. In 2010, the government divested the remaining 40% of NIC shareholding to the public.

Uganda has one of the lowest insurance penetration rates in Sub-Saharan Africa of about 0.8%, followed by Tanzania 1.1%, Rwanda 2.3%, Kenya 3.5% then 14.2% South Africa. Insurance firms, in Uganda specifically, are expected to pay claims of up to UGX 10 million working days. One of the challenges faced by this sector is high taxation, in the 2014-2015 budget, the government of Uganda reinstated a Value Added Tax (VAT) of 18% on insurance services. Even with this increase, of about thrice more, it did not stop the growth of this sector. According to the IRA, there are about 28 insurance companies, 20 of them offering non-life insurance policies, and 8 of them offering life insurance policies. Some of them in the non-life insurance include AIG Uganda Limited, APA Insurance Uganda Limited, Britam Insurance Uganda Limited, CIC General Insurance Uganda Limited, etc. While some of the life insurance companies include CIC Africa Life Assurance Limited, ICEA Life Assurance Company Limited, Sanlam Life Assurance Company Limited, etc.

With the influence of bodies like IRA, UIA, and the government, Uganda has seen a lot of changes in the insurance sector. In 2013, Stamp Duty on Insurance products was increased from UGX 5,000 to UGX 35,000. This led to an increase in the premium rates and hence reducing the number of policies sold between 2012-2013. The government then removed the VAT exemption on insurance services in 2014. Also, in 2013, it was required that insurance companies employ only 2 expatriates and one of them must be Ugandan. The paid-up capital requirements have increased from UGX 1 billion to UGX 4 billion for non-life insurance, from UGX 1 billion to UGX 3 billion for life insurance, from UGX 2.5 billion to UGX 10 billion for reinsurance companies, and from UGX 55 million to UGX 75 million for broking firms. This was according to Insurance Statutory Instrument 22/2013. IRA also directed that at least 50% of the insurance company’s directors to reside in Uganda.

The table below shows licensed insurance players over the years

Photo Credit: Insurance Regulatory Authority of Uganda

The table below shows the insurance industry performance from 2013 to 2017

Photo credit: Insurance Regulatory Authority of Uganda

According to the Financial Sector Deepening Uganda – (FSD Uganda)| Customer Satisfaction and Needs Assessment Reports 2016, Jubilee Insurance Company has the highest total customer awareness level of 79% then ICEA Life Assurance has an awareness level of 76% the report also shows that CIC Insurance Company has the highest percentage of policyholder users by 20% followed by Jubilee Insurance Company by 22%.

Insurance has seen a lot of economic growth in countries, in the safety/ security departments, economic/financial stability, and development. In the security sector, insurers help to restore claimants and beneficiaries’ quicks which reduces costs of unexpected loss, insurers also help to promote knowledge and activities that save lives, protect, and preserve property. In the economic/ financial stability segment, reinsurers stabilize exposure to loss by spreading the transformed risk. Insurance also protects economic interdependence among businesses by insuring supply chains. In the development segments, insurance acts as community builders, infrastructure enablers, and credit facilitators.

With the increase in direct sales, brokers, and agents, there is a need to educate the agents and brokers on better customer treatment, professionalism among stakeholders to help maximize profits. This will also help to stir up fair competition and the delivery of better services. Even though Uganda has recorded a lot of economic growth in the insurance industry, there is still a weak regulatory framework.