The size of the insurance industry has seen positive growth over the past years, with assets increasing to 4.7 percent of Gross Domestic Product (GDP) according to statistics from the Central Bank.
The industry is a prime target for raising long-term resources and boosting a national savings culture that is still very low.
In an interview with Business Times on Friday, Ambassador Claver Gatete, the Vice Governor, attributed the positive growth to implementation of legal reforms and supervisory framework that have facilitated operations of the sector.
“We are building them by establishing laws; this is why we have made progress,” Gatete said.
In the first semester of this year, Gatete said the Central Bank completed drafting of the insurance contract law which was also presented to stakeholders.
The law which is expected to be completed and operational next year caters for consumer protection, which in turn underpins market confidence.
It also comes with a law on compulsory insurance coverage to protect the public by imposing professional insurance indemnity and insurance cover for certain vulnerable groups like construction site workers.
Gatete also noted that the current legal framework being implemented is consistent with international standards.
“We want to make sure that it is consistent with the international norms of regulating the insurance companies.
It is a non-financial institution, but as the industry grows it has large implications for the entire financial sector,” he said.
Insurance sector penetration measured by the ratio of gross premiums written to GDP is showing a positive trend currently estimated at 2.2 percent of GDP in 2009 from 1.0 percent in 2005.
However, this ratio is still far below that of middle-income economies like South Africa which stands at 10percent, the Vice Governor observed.
The Central Bank’s target is to have 10-percent penetration ratio by 2020.
“We still have a lot of problems; general understanding of the importance of insurance companies is still quite low. The public needs to be sensitized.
In some other countries, you take out an insurance policy for practically everything - education, building a house, everything is insured,” Gatete said.
Referring to the public, he added, “Even with life insurance, sometimes they feel they can do without it.”
The Vice Governor challenged insurance companies to invest in client education to increase their market share penetration.
“Capacity building is ongoing for insurers - we have some benchmarks which they shall have to meet in order to build capacity and work like professionals,” he said.
He further urged insurance companies to diversify their products to be able to harness the market.
“In other countries it is the industry that develops the products, and then accesses the market, hence accessing the people. The people then have to make a choice.
Here (market), there were few new products coming up and that is what they are developing now,” he said.
However, with the current reforms going on, the Vice Governor said he was optimistic that the Central Bank would attain its market penetration target.
“This is why we are saying that these kind of new products are going to help in terms of market penetration because it will no longer be the person who has a car or house that has to look for insurance,”
More insurance regulations (regulations on liquidation and dissolution, regulations on mergers and closure of insurers), Gatete said, are in drafting stage.
“The insurance sector is very crucial. It is one of the products that we are studying in the area of long-term resources,” he said.
With the existing legal reform and supervisory framework, Gatete said he anticipates more inflow of foreign companies and private investors.
Currently the sector comprises six private and two public insurers, amounting to a total of eight insurance companies and four insurance brokers.
This is in addition to 126 insurance agents that were all licensed this year.