Over the years, the insurance sector in the country has witnessed growth of players singing a song of promise, but without real impact, according to the National Bank of Rwanda.
The penetration confirms this. According to the National Bank of Rwanda (BNR), it stands at about 2 per cent and cases of unpaid claims are becoming more frequent.
The number of insurance companies by December 2016 stood at 15, with BK General Insurance Ltd having joined the market in July 2016. Currently, the Rwandan insurance industry is composed of nine non-life insurers, four life insurers, two public medical insurers, 15 insurance brokers and 415 insurance agents.
The pension sub-sector is composed of one public pension scheme, Rwanda Social Security Board (RSSB).
So the question is whether the decision last week by BNR to halt licensing of new insurance players in the country will give a chance to the sector to stabilise.
According to a statement signed by BNR Governor John Rwangombwa, the measure came into effect last week.
Peace Uwase, BNR director-general for financial stability, told The New Times on Friday that the suspension of new licensing is meant to give insurers time to improve their operations and build public confidence in the sector.
She cited unfair and unhealthy competition among the challenges hurting the sector, which has led to price undercutting.
“This has had an impact on their performance, profitability and capital with most of them having to recapitalise over again. We made a bit of progress by December, as a number of them had been able to recapitalise,” she said.
“We issued a directive to be able to guide the conduct in terms of competition. The moratorium is supposed to give us time to implement some of the changes that we have started. Restore confidence and good practices in the sector as we go forward.”
Profit wise, private insurers are not fairing very well with their net loss in 2016 going up to Rwf 4.4billion from 2.7 billion in 2015, according to the central bank.
“This performance was mainly driven by unhealthy competition among private insurers that led to price undercutting and an erosion of premiums underwritten. This was further exacerbated by high claims ratio and management expenses,” the bank said in its latest Monetary Policy and Financial Stability statement.
It is still too early to determine how long the freeze will last but BNR said they were optimistic that it will not take too long.
“The shorter it takes the better for everybody. We have seen some progress because of the recapitalisation of insurance companies,” Uwase said.
“I do not think it will take way too long but it is too early to be certain how long it could take. I think it is ideal that we get the sector to a point where the performance is promising for everybody and provide confidence to the market at large.”
The Rwandan insurance sector is said to have a lot of potential.
The entrance of foreign firms into the sector over time had created excitement and optimism that it could influence change which has not yet come to be.
Industry experts had expected that the foreign players would bring in best practices worth emulating by local firms.
Foreign players, little impact
Uwase said that although that was the expectation, there has not been much impact as a result of new entrants.
“That would be the expectation that as we get players from other economies and other markets that are probably more developed than our own, they would positively impact the sector here in terms of innovation and practices,” she said.
“We have seen an influx of foreign players but have not felt that impact as expected in terms of product innovation. We do not know if it is that entrance that led to unfair competition. It is difficult to tell but the expectation is that as we get players from other markets, they bring innovation. It is a bit disappointing to say that impact really has not been felt.”
The freeze, however, will not apply to instances of mergers, acquisitions, takeovers or purchase of shares of insurance companies.
The move will also not affect the expansion processes of new firms as they open up branches and rollout new products into the market.
The freeze comes at a time when a public insurer, RSSB, is in the process of acquiring Sonarwa Insurance Ltd, one of Rwanda’s oldest and largest insurers.
Sonarwa currently has multiple shareholders, including RSSB and Industrial and General Insurance SA, a Nigerian insurance firm which acquired 35 per cent stake in the insurance company in 2008.
This is not the first attempt to fix the issues that have dogged the insurance industry. Last year, the central bank issued a directive stopping insurers from selling premium on credit while the Rwanda Insurers Association (ASSAR) issued a statement warning members against unprofessional conduct around the same time.
Jean Pierre Majoro, the Executive Secretary of ASSAR told The New Times that they support the move by the regulator and would work closely with the central bank to fix the long standing challenges.
“The regulator has a role to develop the market and such decision is for the good of the industry. We will talk with BNR to find out why such a decision was taken.