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04 Sep 2020

COVID-19 HAS CREATED OPPORTUNITIES FOR THE INSURANCE INDUSTRY – IRA CEO

The Insurance industry has equally been affected by COVID-19 in many ways just like many other sectors. IRA’s Chief Executive Officer Alhaj Kaddunabbi Ibrahim Lubega highlights the challenges and opportunities so far created for the insurance sector during this pandemic in the following interview.  

1. How has COVID-19 impacted insurance in your region?

Generally, insurance thrives in a thriving economy. The slowdown in economic activity and the near cut-off of the public’s earning potential means low disposable income and minimal or no allocation to insurance. The uptake of new policies has dipped as many policyholders opt-out of insurance by not renewing their policies. With a very tight economy, Insurance is likely to be more secondary in the shot to medium term.

Significant premiums that have been generated from engineering/construction related investments from both private and public have reduced. From the public sector, infrastructure investments are bound to reduce as reallocations are made to strengthen the health sector response capabilities. Additionally, a number of projects that consume insurance are donor-funded and these funds are anticipated to reduce across the region.

There are no more insurance premiums emanating from travel insurance as international travels were banned and premiums from marine insurance have dipped as the international trade has slowed down.

The other effect is the increased lapse rates of life assurance policies. The COVID-19 has disrupted the income stream of millions of people with a disproportionate impact on the private sector. In the short-run, attention for income allocation is on the basic needs, not insurance. Standard Insurance contracts have premium payment as a warranty and the remedy of faulting on a warranty is the termination of the policy.

2. Has the impact on the industry differed from what you expected or predicted when the pandemic began? If so, how?

We expected this impact, but perhaps what we didn’t anticipate was how the sector was going to respond. Interestingly, the sector has within a very short period upgraded its operational models and we have continued to deliver on promises even within the existing constraints. A case in point was when the industry players unanimously agreed to support Government efforts in preventing the spread of COVID-19 by making exemptions to the standard policy terms and conditions for medical insurance.

We provided regulatory guidance to all medical insurance providers to allow and admit valid claims for medical expenses and or provide testing and treatment of insured patients infected with COVID-19.  This action was proof that insurance is relevant and beneficial in such circumstances.

This impact has also enabled players to greatly improve in the technological capabilities and achieve the desired targets. We are optimistic that this pandemic is likely to improve risk awareness amongst the population because it has demonstrated how devastating unplanned risks can be.

3. As the fountain of honor for this industry, what has been your role in these unprecedented times to the industry players and the public?

We have played a dual role specifically in ensuring that the sector players remain stable and capable of delivering on their commitments and promises to the insuring public or their clients. We have provided guidance to players on measures that preserve their capital so that they remain solvent and in business; relaxing the claims payment conditions so that the public is not exposed to fraudsters; we have also relaxed the premium payments conditions including, but not limited to, extension of grace periods and allowing installments.

On the other hand, the mandate of IRA is to ensure that the insuring public (policyholders and policy beneficiaries’) are all protected. The regulator has done everything possible to ensure that nothing is done to detriment of the insuring public for this may permanently dent the already-not-so-good image of the sector. Issues of market conduct of insurance players and prompt claims payments are critical in this regard.

4. What are your expectations around the market structure, consolidation, M&A, and how are you thinking about the consolidation of smaller players?

With the COVID-19 pandemic, the players’ top priorities have been survival, attending to customers' immediate needs, and protecting solvency. In addition, the focus has been on renewals with the very minimal booking of new businesses which certainly introduces deficiencies in liquidity.

So while we may not register many companies suffering from distress, we can’t rule out the risk of liquidity stress across the insurance value chain. This has the potential to push companies to look for urgent capital resulting into Mergers or Acquisitions.

Likewise, insurance brokers are likely to experience greater liquidity stress than insurance underwriters, largely due to brokers’ lower levels of cash reserves. But stronger brokers may see an opportunity for acquisition or consolidation. Other investors (including private equity) are positioned to bring needed liquidity and capital to struggling companies.

So, yes, the COVID-19 pandemic will initiate strategic discussions around Mergers and Acquisitions, and accelerate those already initiated.

5. We have heard of this Marine insurance and having importers to insure their cargo locally. When is it taking effect?

We have been working with Uganda Revenue Authority, the Shippers Council, Kampala Capital City Traders Association, and other sector player’s and now we are in advanced stages to roll out the purchase and provision of domestic marine cargo insurance to importers by local insurance companies.

Currently, whereas importers are insuring their cargo in the country of origin, through their suppliers, this is against the law making the country lose millions of dollars in the ign insurance business as well as foreign exchange. So having marine insurance purchased locally will reduce the cost of doing business on the importers. The claims process shall be made cheaper and in a language easily understood so that when an importer gets a challenge he/she can easily follow up on his goods but also lodge a complaint with the insurance company operating locally.

We also expect the revenue lost shall also reduce because when an importer pays a local insurance company, the money will be spent in Uganda and not outside Uganda, thus expanding the revenue tax base and create employment opportunities.

So with the URA Single Window, importers are going to be required to submit their customs clearance documents together with the Marine Cargo Insurance Certificate during cargo clearance at the country’s border points.

We agreed that the launch of this new system takes effect before the end of next month (September 2020).