The move by the central bank to introduce a minimum rate for third party insurance premiums has helped tame the vice of underselling, which had taken root in the local insurance sector.
Motor vehicle insurance cover makes up 40 per cent of the sector’s total underwritten premiums.
Over the past few years, insurance firms had developed a habit of underselling the product to win clients, but ended up paying more money in claims, resulting into huge losses.
This forced the National Bank of Rwanda (BNR) and the Association of Insurers (ASSAR) to swing into action. The two conducted a study and later came up with minimum insurance premium fees, as well as put in place a code of conduct for the industry.
While presenting BNR’s bi-annual monetary policy and financial stability statement for 2014 last week, central bank governor, John Rwangombwa, said the price undercutting in the sector had greatly affected the firms’ underwriting profits over the years, thus slowing the sector’s growth.
According to BNR data, private insurers made a net loss of Rwf3 billion last year, a drop from a net profit of Rwf1 billion in 2013.
However, the underwriting loss was lower last year compared to 2013, narrowing to Rwf5.6 billion from Rwf8.1 billion in 2013.
David Bakuramutsa, the advertising manager at Radiant Insurance, said price undercutting has been curbed by these measures. He noted that the winning key today is good customer service.
“Insurance prices have stabilised and we now compete basing on efficient customer service, networking and one’s ability to convince clients on the advantages of their services,” he said.