The local insurance industry continues to suffer big losses due to persistent price undercutting practices among insurers, the industry regulator, the National Bank of Rwanda (BNR) first quarter monetary policy and financial stability statement indicates.
The central bank indicated that many insurance firms under price motor insurance and medical premiums to win clients, a vice that has significantly affected the sector’s performance.
The private insurance companies’ underwriting losses stood at Rwf188 million, while the total premiums written was Rwf15.7 billion in March this year, the regulator indicated in the report.
BNR governor John Rwangombwa attributed the loss largely to price undercutting of motor insurance covers by some insurers, noting that there were new cases of irregular pricing for medical insurance policies.
Motor vehicle insurance cover is about 40 per cent of the sector’s total underwritten premiums.
Last year, the central bank together with the Association of Insurers (ASSAR) introduced a minimum price for Third Party motor vehicle insurance premiums, below which the insurers were not supposed to charge their clients in order to fight the undercutting.
Insurance experts acknowledge firms that undercut insurance premiums win clients, but note that such insurers always end up paying more money in claims, resulting in huge losses for the firms.
Commenting on the issue, Blaise Uhagaze, the secretary general of the Association of Rwanda Insurers, said cases of motor insurance undercutting have reduced.
He argued that the underwriting losses recorded by private insurance firms in the first quarter of the year should not be attributed to only suspect pricing on medical cover as indicated by the central bank.
He claimed that individual insurance firms have own specific problems, which affect their balance sheets.
Bonaventure Sangano, the head of non-financial institutions at BNR, indicated that the magnitude of the problem varies across the sector, saying that each insurance company has some specific issues, like corporate governance, that hurt profitability.
“We need strong measures to weed out the vice of motor and medical insurance policy price undercutting to boost firms’ earning and spur the sector,” he said in an online interview.
Before the minimum price for motor insurance was set mid-last year, the insurers had posted a Rwf4 billion loss, mainly due to the undercutting. The total loss for 2014 was Rwf5.6 billion, indicating that insurers made a smaller loss of Rwf1.6 billion in the second half of the year, a development that could be attributed to the new measures by BNR to curb the vice.