Insurance companies in losses

In 1975, auto insurance rates in Rwanda were at 12 per cent of the value of the vehicle. Last year, rates equaled 0.7 per cent, causing insurance companies to unexpectedly double or triple their premiums since March this year and ushering in a new set of regulations for the industry.

Société Nouvelle d’Assurances du Rwanda (SONARWA) director general Corneille Karekezi told Business Times last week that his company lost Frw3 billion over the last three years because of the low premium rates.

In 2006, SONARWA charged Frw268,458 to insure a Toyota Hiace 18-passenger minibus, but last year it charged Frw80,000 for the same vehicle.

"We’re not making profits. We’re making losses. So how can insurance companies accept selling at a loss for many years?” Karekezi said, noting it comes down to about Frw800 per day for some of the rate increases.

"It’s less than one litre of fuel. It’s less than parking for a day. It’s less than the fees to wash a car at the end of the day. It is less than what they are making as a contribution for a football team per day. They can’t say insurance is expensive, it is not expensive.”

Others beg to differ.
Twahirwa Dodo, president of The Association of Commuter Taxi Drivers (ATRACO), recently told The New Times that his organisation previously paid Frw170,798 for its minibuses.

"Now it has doubled to Frw324,000, an increase which is alarmingly high,” he said. "This comes at a time when fuel prices have also shot up yet didn’t increase fares. This causes us untold losses.”

Auto insurance stakeholders, including representatives from the Ministry of Investment, the Ministry of Finance, the Central Ba"reverse cycle of production” in the insurance industry causes companies to undersell their product in a competitive market. "It’s what we call unprofessional competition.

In any industry when there is competition, the price reduces but up to a certain level, up to a level where everyone is making money,” he said.

"This specific nature of insurance, that’s why the regulator must come and say this is the minimum. You can’t sell below this. If you sell below this, you are cheating people. You will not be able to pay them. No one can accept someone cheating people in the public. That’s why we’re regulated.”

In 2002, the Rwandan government set up the National Insurance Commission to try to address some of the problems in the insurance industry, such as the type of coverage and the premium rates.

Central Bank Governor Francis Kanimba said the commission took too long to get established and deliver on its mission of regulating the industry. The government moved the regulation responsibility on insurance companies to the Central Bank.

Kanimba said a new department was set up within the Central Bank to deal with its new responsibilities. "It has been a challenge, but we have a history of regulations, for example the banks,” he said. "We’re busy building the capacity of the new department.”

Currently, the Central Bank has a team of 10 people in the insurance regulation department and Kanimba expects the team to double in the next two years "to help deliver on its mission.”

A procurement process is in the works for an international auditing firm to conduct audits on all of the insurance companies and to help the bank set up a regulation system. Kanimba said he hopes the process will be completed before the end of 2008.

At the July 24 meeting, the Central Bank agreed that the increased premiums could remain where they currently are, at 2.5 per cent of the vehicle’s value.

Dodo said he was not happy with the agreement. "The rates are blatantly high yet we didn’t increase the fares,” he said. "The fact that the meeting has resolved that we continue paying the same rates means it has not come to our rescue.”

Karekezi defended the increase by saying that the rate is still low compared to other countries in the East African region. In Kenya, the rate is four per cent of the vehicle’s value, while in Uganda, it’s five per cent. Karekezi noted that in Europe the rate is nine per cent.

He also said that people are always free to choose alternative levels of coverage which would make their premiums go down.

For instance, if they chose a 20 per cent deductible, their premium would be half price "because you’re sensitized to drive safely so that you don’t touch your pocket, but people refuse and say, I want to be covered 100 per cent, well you have to pay the price.”

In addition, Karekezi said that everything related to a claim has increased, so it follows that their rates would also increase.

For example, according to SONARWA in a memo to stakeholders, the cost of a headlight in 2001 cost Frw18,624 while in 2007, it cost 41,300. Similarly, the average labour cost to make repairs has also gone up, from Frw4,523 in 2004 to Frw9,050 in 2008. "Everything is going up—fuel, salaries, telephone bills,” Karekezi said.

"Why can’t they expect that insurers will increase their rates?”

Ends