Motor vehicle owners will today discover the new cost of insuring cars as sector players are set to announce a fresh insurance premium regime.
Stakeholders from the local insurance sector are set to convene today to assess the future of motor vehicle insurance premiums pricing.
The meeting, which will be chaired by the Minister for Finance, will among other things review the findings of an actuarial survey of motor vehicle insurance.
The meeting will also consider the way forward in regards to an intention by the Association of Insurers, (ASSAR) to raise motor vehicle insurance.
If approved, this will be the second phase of the hike following last year’s adjustments which industry players said was triggered by the need to safeguard the insurance sector from collapsing after a sustained period of losses.
Central Bank Governor John Rwangombwa speaking at the Monetary Policy and Financial Stability statement yesterday. Emmanuel Kwizera
In January 2018, the association announced an increase in insurance premiums by up to 73 per cent for private and public vehicles.
However, following public outcry, the association agreed to increase in two phases at 60 per cent and 40 per cent.
The 40 per cent increment was supposed to take effect in January this year.
However, Central Bank Governor said that they commissioned a fresh study before deciding on the modalities of the increase.
The increase of the premiums can partly be justified by the continued poor performance by the sector.
According to the Rwangombwa, the Rwandan insurance sector makes losses in underwriting and is only profitable due to investments in aspects such as real estate, equities and government securities.
Officials follow proceedings at the Monetary Policy and Financial Stability Statement yesterday morning at the Kigali Convention Centre. Emmanuel Kwizera
Underwriting losses in the industry stood at about Rwf4.2 billion as of December 2018 with motor vehicle insurance accounting for about Rwf1.5 billion, according to central bank data.
However, clients have spoken against the likelihood of a further price increases, saying that it will have spillover effect on other sectors.
Robert Bafakulera, the Chairperson of the Private Sector Federation warned that the move could undermine the growth of the local transport sector which the government has been working to grow.
The event was attended by chief executive officers of local financial institutions. Emmanuel Kwizera
Currently, the government has given tax exemptions to imports by players in the public transport sector. However, Bafakulera said that the government’s efforts could be undone if the cost of operating goes up significantly owing to the new premiums.
“As they consider enabling the insurance sector to make profits, I do not think it should be at the expense of other sectors such as transport, which could be driven to losses with further premiums adjustment,” he said.
Senior management of the Central Bank engaged stakeholders from the local financial sector during the half-day meeting. Emmanuel Kwizera
He called for the consideration of transporters whose operating cost he said are already high owing to fuel prices.
He suggested the pricing of premiums using risk factor, which take into account the probability of the occurrence of incidences.
The association has defended the move saying that it is important to ensure that the sector operates sustainably and can provide standard insurance products.
ASSAR’s President, Gaudens Kanamugire, said that so far, there was improvement in the sector thanks to the new premiums implemented last year and was optimistic of the sustainability of the sector.
Kanamugire also asked banks to consider a product to lend to insurance clients to ease their ability to pay premiums.
As a result of the implementation of the 60 per cent increase last year, underwriting losses went down from Rwf4.3 billion to Rwf1.5 billion while premiums increased to Rwf25.7 billion from about Rwf21 billion.
The insurance sector reported a profit of Rwf44.7 billion in 2018 with improved profits from investment such as government securities being the biggest drivers.
Experts say that there is also need to curb fraud in claim settlement, especially in garages as well as improving operational efficiency and curbing operating expenses.
Firms could reduce on costs by investing in technology to enable clients access them directly without agents.