Unethical conduct, coupled with illegal tendencies, are threatening to tear apart the local insurance sector, industry experts and players have said.

The situation has already forced the central bank and the insurers’ body to swing into action to address some of these vices. Sector players say there has been a growing trend, whereby some firms were selling insurance premiums on credit while others are undercutting their prices to win customers.

In fact almost 40 per cent of the sector’s total assets are now held in receivables, making it difficult for the industry to grow, according to Bonaventure Sangano, the head of non-financial institutions at National Bank of Rwanda (BNR).

Sangano told Business Times that insurers have been failing to pay claims because of vices, like selling insurance policies on credit and price undercutting.

"This has resulted into business uncertainty and accumulation in the unpaid compensation claims. Besides, this means that there is no opportunity for insurance firms to reinvest, which affects their growth and that of the industry,” Sangano noted.

BNR issued a directive stopping insurers from selling premium on credit about two months ago, while the Rwanda Insurers Association (ASSAR) two weeks back issued a statement warning members against unprofessional conduct.

"We are now saying it is illegal to sell insurance cover on credit. Anyone that wants insurance on credit should be advised to first acquire a loan to fund the transaction,” Sangano said.

Sector players who requested to remain anonymous said government agencies are some of the customers that always seek premiums on credit.BNR directive is part of the strategy that will, not only to implement the law on conduct of insurance business, but also grow the industry, according to ASSAR officials.

Articles 10, 15 and 16 of order No. 06/2016 issued in August say payment of premiums, the sale of insurance on credit is strictly prohibited.

John Bugunya, the ASSAR chairman, said the move promotes best practices and "aims at improving the performance of insurance firms, enabling them to better serve customers and other stakeholders”. "We are, therefore, appealing for the co-operation and support from costumers by ensuring they pay cash when acquiring insurance cover,” Bugunya said.

Bait to woo customers

Jean Pierre Majoro, the executive secretary of ASSAR, said firms that were selling premiums on credit could have been using it to woo clients. Majoro lauded the central bank’s action, saying the intervention will help strengthen the industry going forward.

He attributed the low penetration rate and mild sector growth over the past few years on such vices.

"By giving out premiums on credit, it becomes difficult for them to pay claims, which partly explains why the sector has not been growing for the past few years,” he said.

He added that the intervention of the central bank will eventually boost the sector’s profitability, and enhance trust between clients and insurers.

Local insurance sector experiences low penetration levels at about 2 per cent, with the country lagging behind other countries in region. For instance, penetration levels in Kenya stand at 3 per cent, while the Africa average is 2.8 per cent.

The low level of insurance uptake in Rwanda is one of the reasons the government and market players have lately stepped up campaigns to encourage Rwandans to take up policies to safeguard their businesses and properties and, ultimately, deepen penetration. However, the industry has been faulted for lack of innovation, poor customer analysis and poor customer service.

Experts say these are some of the challenges driving away would be clients, adding that insurers have also failed to tap into market segments, like SME and agriculture sectors, that could significantly enhance penetration rates. But they note that it will take more than just numbers to grow and take the industry to the next level.

"It will require high level of professionalism, innovation and customer care to increase insurance uptake,” Esdras Nkundumukiza, the commercial director in charge of SMEs at SORAS, a local insurance company, said.

A recent study by KPMG indicates that 38 per cent of the insurance firms do not conduct customer analysis while designing insurance products.

The study, however, shows that 62.5 per cent of insurance firms rely on customer data when conducting day-to-day sales and relationship management, while 75 per cent firms rely on used data when designing new insurance products. Sector watchers say this partly explains the low level of insurance penetration, noting that insurers have not taken advantage of changing distribution channels to drive uptake.

Move to streamline sector

Meanwhile, the association of issuers is currently working on a five-year strategic plan it hopes will help increase penetration levels and make the sector more competitive. The plan, in final stages of drafting, is expected to address the challenge of product development and pricing. Market players will need to ensure they adjust distribution channels to become more efficient and competitive.

Current performance

The insurance sector’s total assets increased by 11.6 per cent year-on-year, from Rwf295 billion in June 2015 to Rwf329 billion this year, according to BNR statistics.

Its total capital improved by 9 per cent, from Rwf218 billion to Rwf238 billion, in the period under review. For the same period, the total written premium increased by 16 per cent, from Rwf47 billion in June, 2015 to Rwf55 billion, during same period this year.

However, private insurers’ performance deteriorated as some insurance companies were involved in unhealthy competition, price undercutting, and other unethical practices, leading to solvency and liquidity challenges, as well as poor performance and operational inefficiency, officials say.

Practices like these meant the central bank, which is the sector regulator, had to crack the whip to avoid their proliferation and safeguard the insurance industry from plunging into a self-inflicted financial crisis.

Officials from BNR say the regulator will continue to engage insurers to ensure they implement the guidelines without exception.

Rwanda’s insurance sector consists of nine non-life insurance firms, while four are life insurers, with two others providing public medical cover. There is also one public pension scheme managed by Rwanda Social Security Board (RSSB) and 57 private pension schemes.

business@newtimes.co.rw