Reforms introduced in the recently passed Insurance Bill  

 

Early this year (May 2017), President Yoweri Kaguta Museveni assented to the Insurance Act 2017, paving way for major reforms. Mariam Nalunkuuma the Communications Officer Insurance Regulatory Authority of Uganda, provides some highlights in the new insurance law.

 

The previous law was mainly amended to adhere to the International Association of Insurance Supervisor’s Insurance Core Principles (ICPs). The ICPs are currently adhered to by 240 countries and are the benchmark for all insurance business in the world. Uganda too was obliged to adhere to them in order to compete on the world market.

 

The new law has empowered the Authority to effectively set standards, implement and enforce the law; harmonize insurance laws within the East African region; provide for corporate governance principles and practices. It has also embedded best practice provisions for Risk Based Supervision as well providing for fulfilling the requirements for Anti-money laundering and Terrorism financing. It’s important to note that the previous insurance law had not incorporated the recommendations relating to the anti-money laundering and counter financing of terrorism, which left Uganda exposed for blacklisting by the International community.

 

There are a number of salient features in the Insurance Act 2017, which stakeholders need to be familiarized with. With the new law, there shall be increased representation to the IRA Board with additional members from the Uganda Retirement Benefits Authority (URBRA) and Capital Markets Authority following the cross-cutting regulatory requirements of the players.

 

Perpetual licensing

Under the new law insurers will no longer have to pay for annual licenses but the issued license shall remain in force until it’s suspended, varied or revoked by the Insurance Regulatory Authority of Uganda. This marked the end of an era where insurance companies have to annually renew their licenses in order to do business. On the other hand, intermediaries such as insurance brokers, loss assessors, among others, shall be issued with licences for two years and may be renewed for another two years.  Although a license shall not be issued to an insurer carrying life and non-life insurance business, a license may be granted to a micro insurance organisation carrying both businesses.

 

The IRA shall be required to communicate its decision on the licence application of a player within sixty days from receipt of a complete application. This will reduce the licensing period from six months.

 

Control functions

The new law sets in place strengthening of Risk management and internal control measures. Whereas the previous law was not providing for adequate administrative controls, the new law has reinforced the governance and management framework apportioning responsibilities to shareholders, directors, senior management and key persons in the control function. Specifically, every insurer and HMO shall be required to establish and maintain; a risk management function, a compliance function; an actuarial function; an internal audit function and any other as shall be determined by the Authority.

To improve the supervisory review and reporting, the new law requires that records shall be kept for a period of 10 years after the end of financial year to which they relate.

 

Introduction of “Cash and Carry”

The Act introduces Cash and Carry measure for mainly insurance brokers and agents. This development when fully implemented will improve liquidity and ease cash flow of insurance companies. Like in many other jurisdictions, the “Cash & Carry” measure will enable insurers rethink their strategies by offering creative solutions for premium payment to their customers as well as customize their client needs.

 

In addition the new reform will no longer allow insurance companies to sell insurance policies on credit to its customers. The ‘no premium no cover’ policy will enable insurers to collect premiums upfront before providing insurance cover for any class of insurance business. Hitherto, it has been noted that some unscrupulous people move from one insurance company to another, to take insurance cover on credit and never pay.

 

Transition from compliance based to RBS

The previous law which was compliance based involved checking for and enforcing observance with set rules in form of legislation, regulations or policies which were mainly applicable while licensing an entity. However, the new Act shall shift to Risk-Based Supervision (RBS) which is gradually becoming the dominant approach to regulatory supervision of financial institutions and sectors around the world.

 

This approach is comprehensive, with formally structured systems that assess risks within the financial system and gives priority to the resolution of such risks. To protect the interests of the policyholders, the Act through RBS regulations will for example require companies to allocate enough resources to cover the risks undertaken. And based on the financial institutions’ risk profile the IRA shall determine where to allocate more of its supervisory function, resources and time.

 

Establishment of Insurance Training College

The insurance industry currently has its training arm as the Insurance Institute of Uganda (IIU). However, the Act requires that the IIU status changes from a private tertiary institution to a public tertiary institution and change its name to the Insurance Training College. The college shall receive and administer the Insurance Training levy for certification of training programmes for licensees and shall account for the funds in accordance with the Public Finance Management Act 2015. The Minister of Finance shall appoint the College Board with the recommendation of IRA. To date, all insurers are remitting the training levy on the gross premium written charged on the policyholders to the IIU.

 

Management takeover

The new law introduces various administrative remedies to the IRA in the event of variation of license. For example, in the event that the license of the licensee has been revoked, the law introduced management takeover by way of appointing a person to manage, control and direct the business and affairs of the licensee, in addition to taking custody of its assets.

Management take over shall also come into play if in the opinion of IRA; the licensee is conducting business contrary to the Act; if the insurer breaches or is likely to breach a solvency control level as shall be specified in the regulations; the licensee is engaged in or is knowingly facilitating criminal activities and if the continuation by the licensee of its activities are detrimental to the interests of its customers. This has not been the case with the previous laws.

 

Consumer protection

Whilst the major challenge facing the insurance industry today is lack of insurance knowledge and the varying perceptions and negative attitudes about insurance service provision, the new law specifically mandates the IRA to undertake massive sensitization. This will in effect promote awareness of and create public education hence facilitating the interests of consumers and prospective clients to be better served.

 

Conclusion

The reforms highlighted among others are to strengthen the insurance industry to be able it to play its rightful role in the economic development of Uganda and have the muscle to compete more effectively with other multinationals in the international market.

The reforms are also aimed at keeping the evolving insurance sector scenario and regulatory practices across the globe. It is anticipated that law shall commence this year (2017) as the statutory instrument for its commencement is in the final stages and availed to the Minister of Finance for signature.

 

Mariam Nalunkuuma

Communications Officer

Insurance Regulatory Authority of Uganda

mnalunkuuma@ira.go.ug