Vehicles that have been involved in many accidents will be subjected to higher insurance premiums if insurance firms adopt a new pricing strategy.
Under the proposed risk-based being planned by the Rwanda Insurers Association and the National Bank of Rwanda, vehicles with low accident records will be charged less.
Insurers argue that they making losses on motor vehicle insurance due to low premium and high claims
Jean-Pierre Majoro, Executive Secretary of the Rwanda Insurers Association, told The New Times that “There is no point in charging the same insurance premiums to the person who behaves well and the one who frequently makes accidents.”
The strategy also proposes bonuses for “disciplined drivers” and fines for “errant” ones.
“This means that the premiums that you paid last year on the same risk and car will not be the same…there will be a given percentage reduction (if your car was not involved in an accident),” he said.
Insurance firms are expected to meet in the next few weeks to discuss the tariffs including bonuses and penalties under the proposed policy, which could come into force in January next year, Majoro said.
The insurers will have access to a centralized online system with information about all insured vehicles, he disclosed.
Currently, he said, when a car makes an accident (as a result of over speeding) and an insurer wants to penalize it (because they caused huge losses to the insurance), the owners go to another insurance firm, which welcomes them as the client.
“But, we are addressing such a challenge through a centralizing data system such that. If the person goes to another insurer and he/she welcomes them, they will be punished,” he said. “An insurer who receives the offender and gives them insurance cover without a fine will pay the price.”
With a risk-based pricing system, insurers can assess the client’s driving behavior among other factors and give a discount to those who behave well, said Peace Masozera Uwase, Executive Director at the National Bank of Rwanda’s Financial Stability Directorate.
“In a market that is performing well, that is what should be done,” she said.
Rwanda’s insurance sector has 14 companies of which 12 are private insurers.
The sector has a combined asset base of Rwf477.3 billion, which represents 1.8 percent of the country’s GDP, according to the central bank.
The sector is also grappling with low penetration, high operating costs, limited product differentiation, price undercutting and fraud in the claims process.
According to central bank data, the insurance sector penetration (the ratio of total premium to GDP) stood at 1.7 percent in June this year, the same as in June 2019.
The low penetration also reflects low usage of insurance products and services by households and firms.
For instance, the total insurance policyholders stood at 795,932, which is 11 percent of the total adult population.
The low penetration is partly due to the mismatch between the insurance products on the market and the needs of households especially in rural areas and the informal sector, according to the central bank.
This call for the diversification of insurance products, currently dominated by motor and health insurance.