Insurers have hailed the Central Bank’s orders to split the insurance business into two categories, saying that it will promote efficiency, fair, safe and a stable insurance market in the country.
The demand is contained in the new law (Law N° 52/2008 of 10/09/2008) which calls for insurance firms to divide their business into long-term insurance business and short-term insurance business.
Insurance companies say that the National Bank of Rwanda’s (NBR) move will yield positive results for the budding industry that is estimated at only 1.5 percent as a share of the country’s Gross Domestic Product (GDP)
“It just came to enhance our business with two sister companies’ different targets and policies for a common goal,” Peter Claver Nkurikiyinka Commercial Director in Société Rwandaise d’Assurances (SORAS) said.
According to the law, an insurer shall not combine the long-term insurance business and the short-term insurance business except for a person engaged in a reinsurance business who is involved in one of the activities.
Nkurikiyinka said that the law formalised what insurance firms have been practicing, noting that they already operate two different books of accounts, separate departments but share marketing department and top management.
The category of long-term insurance business involves ordinary life insurance, industrial life insurance and bond investment business while short-term insurance business involves insurance of any class not being long-term insurance business.
Benjamin Mbundi, Commercial Director at Société Nouvelle d’Assurances du Rwanda (SONARWA) said that the only difference will be separating figures (financial statements) for each business to those who have capacity to separate the business.
The law says that existing insurers shall apply for separate licenses for each business within a period of two years.
However, insurers expressed concern over the high share capital requirement of Rwf1 billion.
The law states that an insurer carrying on long-term insurance business and short term insurance business shall ensure that at all times its paid-up minimum share capital of Rwf1 billion and every share issued by the insurer shall be fully paid for.
Existing insurers are also required to submit a plan to the Central Bank as to how the separation of long-term and short term insurance businesses shall be achieved.
Recently the Director of Non Bank Financial Institutions Joy Ntare said the sector is strong and sound with great potential for investments and urged investors to exploit the competitive and unexploited insurance sector.
“The sector is still very much open for business. We still trade between five and six products, yet other insurers have an endless list of products. Even the ones we have there is room for improvement in re-packaging and re-marketing,” Ntare said.
The sector has seen a major growth and competition in the recent past, driven by an increase in players from two in 2000 to eight in 2008.