Insurance companies have finally bowed to public pressure by revising the implementation of the recent sharp increase in insurance premiums for motor vehicles.
Early this month, insurance companies had drastically increased motor vehicle insurance premiums by up to 73 per cent, which attracted outcry from motor vehicle owners across the country.
Many motorists said this was rather drastic and demanded that prices be revised downwards.
The mandatory motor insurance increased for both public and private vehicles, affecting both those who opt for the comprehensive package and the more affordable third-party insurance.
In their defence, insurers had argued that the increment was based on an actuarial study conducted in 2013 in collaboration with the central bank which revealed that prices charged on this particular product were below internationally accepted rates.
Yesterday, insurers through their body, the Rwanda Insurers’ Association, agreed to implement the new prices in two phases beginning with this year.
However, this does not mean that prices have been reduced either; what it actually means is that motorists will pay the increment but in phases.
Speaking yesterday in presence of the Minister for Finance and Economic Planning, Claver Gatete, the association’s president, Gaudens Kanamugire, said the increment will be implemented in two phases beginning with 60 per cent and 40 per cent respectively.
He reassured that the increment will no longer be implemented in one go at 100 per cent, and this is aimed at among other things, reducing the impact of the hike on different sectors of the economy.
He also revealed that those who had already paid their premiums in accordance with the new tariff, will either be refunded or receive a credit note based on the revised prices.
“As you may be aware, the insurance sector plays a critical role in the development of the economy including risk transfer and indemnification thereby facilitating financial intermediation, savings mobilization, as well as facilitation of trade and commerce; however, over the past few years, the sector in general and the motor insurance in particular has faced significant challenges including significant losses driven mainly by inadequate price and high claims ratio,” he added arguing that the revised prices are designed not to affect the economy negatively.
“Besides, we are suppliers and we ought to listen to our customers to be able to yield a win-win situation,” he added.
The increase was backed by the National Bank of Rwanda (BNR) calling it a right measure to safe guard the market which has suffered from huge losses.
In fact, in a statement, the Central Bank, which regulates this sector, argued that previous price regime set in 2008 was driving insurers into losses and did not take into account the recent realities such as the increased cost of spare parts and reinsurance.
According to Minister Gatete, it was very imperative to listen and take into account the demands of consumers before the increment.
“We are therefore pleased by the latest development of ensuring that this increment is done in phases as the move means less impact on the economy,” Gatete said adding that government will remain fully committed to supporting the sector.
There is however a need to constantly educate our public about the importance of insurance to help boost the uptake of the insurance products across the country, he said.
Presently, insurance penetration stands at less than 3 percent and this slow penetration has largely been attributed to lack of innovation, unprofessionalism and limited public awareness among other factors.
Some industry experts have argued that new motor insurance premium rates aim at better serving the customers and could help address the questions of delays in paying claims, thus boosting service delivery.
Marc Rugerera, the Managing Director Radiant Insurance Company calls for a balance between what is often collected as contributions and what is paid out as claims to help address the challenges of delays in payments.
“We also know that prices alone cannot be the only solution; we have to have streamlined policies and laws that will help address the sector’s challenges comprehensively,” he argued.
Meanwhile, transporters who spoke to this publication last week threatened to increase transport fare if nothing was done to revise downwards the new car insurance premiums.
For-example in an interview with the New Times last week, the chairman of the Rwanda Federation of Transport Cooperatives (RFTC), Ludovic Twahirwa Dodo, said that “Our main wish is that officials should do something as soon as possible; like working with insurance companies so the prices can be normalised, otherwise the prices are too high.”
Dodo said that the hikes have driven up car insurance prices three times and now it takes more than Rwf4 million to get comprehensive insurance for a Coaster bus whose annual insurance used to be Rwf1.4 million.
Motorists cautiously welcome new move
Meanwhile, many motorists who spoke to The New Times yesterday evening welcomed the new development but with skepticism.
Patrick Niyonshuti a taxi driver based in Kigali said the move by insurers to implement the increment in phases is the best business practice that should be emulated in other sectors.
“Business companies must understand that the role played by customers in the development of enterprises and always endeavour to listen to them for desired objectives,” he said.
Jean Marie Vianney Umuhoza another motorist said that the new approach does not take away the fact that prices are still high.
“Well they have now said they will implement the increment in two phases moreover, within a space of two years, so does it take way the fact that they more than doubled the price,” he asked rhetorically.
This does not take away the fact that commuter coaster that has been paying Rwf400,000 ($468) for third party insurance per year will now pay Rwf692,000 ($809) per year in less than 2 years.
Equally, someone owning a Toyota Corolla model 1999 who has been paying a third party policy of Rwf75,000 ($87) per year will now be paying Rwf129,750 ($151) after two years.
“This means that the increment has only been delayed but not waived, said Umuhoza.
Despite the rate and level of insurance penetration stagnating at less than 3 per cent, the sector registered considerable growth during the first half of 2017 with total assets growing by more than 10 per cent.
In monetary terms, the sector’s total assets stood at Rwf366.5 billion by June 2017, indicating a year-on-year growth of 10 per cent. This growth in assets, according to the central bank was largely attributed to the increase in capital injected, especially by the new market entrants and the retainership in profits during the period under review.
The number of licensed insurance firms increased from 14 in June 2016 to 16 in June 2017.