Nuts and bolts: How insurance works

Insurance is a contract that transfers the risk of financial loss from an individual or business to an insurance company. The company collects small amounts of money from its clients and pools that money together to pay for losses. Insurance is  protection from possible life risks.

The insurance sector in Rwanda is composed of multiple general and life firms, one mandatory and occupational hazards scheme (RSSB), which accounts for 95 per cent of the pension total assets, as well as 12 licensed private pension schemes.


Among the insurance services in Rwanda, are general insurance, a contract of indemnity where the company puts the insured in the same financial position they were immediately before the loss.


 It is short term insurance, generally for a 12 months, and an insured pays a premium once and annually at the beginning of the contract.


Life insurance; long term insurance that pays premium for many years to be given benefits when a claim arises.

Pension insurance are saving schemes that support an insured after retirement from employment. Private pension schemes account for 5 per cent of the pension total assets.

Motor insurance (which is legally mandatory) represents one‐third of the total premiums in Rwanda’s private insurers.  Medical insurance represents over one‐fourth of the total premiums.

How do insurance companies make money?

Insurance companies make money by managing their premiums paid by the policyholders and by investing that premium for long term insurance and by calculating the reserves for the short term insurance. Reinsurance is also another good way of managing well the premiums.

In Rwanda’s case scenario, for instance, the Minister of Finance Uzziel Ndagijimana presented the budget framework paper that indicated that the total assets of the insurance sector increased by 13 per cent. The sector retained earnings worth Rwf46.6 billion in 2019.

Rwanda’s insurance sector retained earnings worth Rwf46.6 billion in 2019 from premiums and other interest generating activities, thanks particularly to the increased assets of insurance firms.

Assets increased to Rwf509.7 billion in December 2019. The industry takes in money and invests that money before subsequently paying claims. With higher investment returns, there’s more profit generated by the insurance sector.

Insurance sector status quo in Rwanda

Insurance industry growth is attributed by the experts to rising awareness among the public. However, the insurance penetration in Rwanda remains generally low. Gross premiums in the insurance sector in Rwanda remains around 1.6 per cent of gross domestic product (GDP).

A report published in August 2019 by the World Bank presented an unpleasant picture of Insurance sector, pointing to the unhealthy competition between insurers who sell a small number of traditional products.

According to the report, insurers were battling each other, often engaging in irrational price‐cutting and other behaviors, to sell the few traditional products to the same customer segment.

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