Real estate players and Insurers have stepped up efforts to mitigate risks in the construction industry. Rwanda’s construction industry has been growing over the last 5 years as manifested by the high rates of urbanisation and increased demand for housing across the country.
Real estate players and Insurers have stepped up efforts to mitigate risks in the construction industry.
Rwanda’s construction industry has been growing over the last 5 years as manifested by the high rates of urbanisation and increased demand for housing across the country.
And because of the rapid growth, experts are calling for new approaches and mechanism to ensure the sector is well protected for sustained economic growth.
They say, insurers must work with developers and design products that will help protect the construction from risks
According to Ignatus Mugabo, the managing director Mugolds International Ltd, the level of protection in construction sector especially the housing industry is still low and does not match the rapid economic developments taking place in the industry.
Mugabo says, it is imperative that stakeholders find mechanisms of mitigating risks surrounding the sector which among others include fire.
"It’s therefore critical that insurers work with developers to advise clients on what should be done to mitigate some of these risks,” Mugabo said.
Mugabo who was speaking during a property risk management breakfast meeting in Kigali last week, added that not responding to these threats will not only cost the sector, but also threatens the country’s impressive economic growth.
According to Mugabo, investors have lost more than Rwf5bn worth of property through fire destruction since 2012.
And when this happens, it’s the insurers and developers that meet the costs, he said.
The meeting organised by Prime Insurance Company and Mugolds International Ltd brought together stakeholders including insurers, real estate developers, bankers and fire protection experts and Police.
John Bugunya, the Chief executive of Prime Insurance Limited, urged players to explore ways of boosting insurance penetration in the construction industry.
"We must begin to exchange ideas on how to design clear approaches and products that will help reduce the risks in the construction industry,” Bugunya said.
And one way to achieve the objective is to encourage feedback from all players and use it to come up with the best products, he added
Statistics of the National Police of Rwanda indicate that more than 122 fire accidents were recorded countrywide last year and destroyed property worth billions of francs.
Assistant Commissioner of Police Jean Baptiste Seminega, said there is need to sensitise investors and general public on prevention and fire fighting inspection mechanism to protect the sector from destruction.
He says strong partnerships between the developers and insurers will provide the best remedy to the problem at hand.
According to developers, all construction projects must comply with standards to help mitigate the risks.
Low insurance penetration
Rwanda’s insurance penetration is relatively low at 1.5 per cent compared to the 2.8 percent average across the continent.
The low insurance penetration is attributed to lack of micro insurance products focusing on small and medium entrepreneurs and innovation among sector players.
Experts argue that the current premier products are not designed to respond to the market reality.
Jean Pierre Majoro, the Executive Secretary, the Association of Insurance companies in Rwanda, says that sector players must innovate to take on those areas and economic activities that have been neglected for quite some time to be able to increase penetration.
These among others should include the real estate industry and construction sector in general.
Majoro adds that some of these areas include the small and medium enterprises where sector players still lack tailored products targeting this sector.
"Micro insurance is the best ordeal that will help increase insurance penetration in the country; the regulator has done his work, and therefore it is up to the sector players to take advantage and invest in skills, knowledge and innovation,” Majoro told Business Times.
They must be able to analyze the ongoing activities in the informal sector and have the product aligned to the reality on the ground, Majoro added.
Overall sector growth
Meanwhile, the country’s insurance sector continues to show some hope with considerable growth in terms of total assets and capitalization, especially the public medical insurers.
For example, by December 2015, the total assets had increased by 12 per cent to about Rwf306 billion from Rwf272 billion at the end of December 2014.
The sector’s total capital equally increased by 12 per cent to Rwf222 billion at end of December 2015 from Rwf198 billion in the same period in 2014.
The solvency margin one of the key indicators to measure insurance financial soundness was for instance registered at 1066 per cent in 2015 above the minimum requirements of 100 per cent.
This therefore means that the sector continues to have sufficient liquidity as it is evidenced by the liquidity ratio of 355 per cent which is well above the minimum prudential benchmark of 150 per cent.
By the end of December 2015, the insurance gross premium was Rwf 91 billion compared to Rwf83 billion as at the end of December 2014, reflecting a slight increase of 10%.
The net profit for the sector increased by 20 per cent to Rwf25 billion from Rwf21 billion in December 2014.
Returns on equity and returns on assets also slightly increased by 0.8% from 10.6% to 11.4% and by 0.6 per cent from 7.7 per cent to 8.3 per cent respectively, above the prudential benchmarks of 10% and 5 per cent, respectively.
Insurance penetration in other sectors
Other sectors where penetration is still low include agriculture and the small and medium enterprise.
For example despite agriculture contributing more than 33 per cent to the national GDP and employing more people, financial service players still see the sector as a risky business venture.
According to John Rwangombwa, the Governor of the National Bank of Rwanda, the agriculture sector remains predominantly traditional, making it difficult for insurers to invest in the sector.
The regulator notes that the agro-industry risk is still too high to predict or for one to be able to make informed decisions.
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