There have been concerted efforts to bolster the insurance sector and make it more competitive over the past year or so.
Drives to popularise the industry, which is one of the lowest performers in the financial services sector, among the masses have also been ongoing. However, players seem to be shooting themselves in the foot by under pricing premiums.
According to the central bank’s bi-annual monetary policy and financial stability statement released last week, insurers lost a Rwf4 billion in underwriting losses in the first half of the year, mainly due to price undercutting.
While presenting the statement, John Rwangombwa, the central bank governor, noted that motor vehicle insurance schemes, which make up 40 per cent of the sector’s total underwritten premiums, were the most affected because most firms undersold to win clients, but ironically paid more money in claims.
David Bakuramutsa, the advertising manager at Radiant Insurance, said price undercutting carries huge uncalculated risks, meaning that firms are unable to pay claims.
He said the practice is widespread, with many firms under pricing premiums from time to time.
According to Bakuramutsa, the Rwanda Association of Insurers (ASSAR) has received several complaints about the same, noting that those found culpable are punished.
“Presently, if an insurer charges below the minimum set fee for any premium, they are fined a percentage of the total bid whether they win or do not land the deal,” Bakuramutsa said yesterday.
Rwanda has 12 private insurers and two public medical insurers.
Allen Karungi Gatete, the Sonarwa Insurance corporate communications manager, said the minimum fee cushions them against loss and ensures the sector’s continued growth.
“The sector will become more competitive and profitable if price undercutting is eliminated,” she said.
Alice Uwamahoro, marketing manager at Cogear Insurance, said fair competition promotes sector growth and reduces cases of delayed compensation.
Rwangombwa said they were working with ASSAR to ensure that the 2008 agreed minimum motor insurance tariffs are followed. He added that they had asked to the insurers’ association to put in place a code of conduct which was signed by all the members in order to avoid recurrence of price undercutting.
There was an 11 per cent decline in net profit for the sector by the end of June this year, from Rwf8 billion in June last year to Rwf6 billion.
Limited innovation, new product development, high operating costs and low public awareness about insurance services are the other challenges plaguing the sector.
Reuben Kibiru, the country manager of the latest market entrant Britam Insurance, said Rwanda has vast untapped potential, noting that only those with quality services will beat the competition.