The Uganda Insurers Association (UIA) has said adoption of compulsory local marine insurance starting next year will help drive the growth of Uganda’s economy.
Effective February, 1, 2025, all importers will be required to insure their cargo using local companies.
This will be after the elapse of the grace period given to importers of up to February.
Speaking during an interview with the Nile Post, John Bukenya, a member of the Non-Life Technical Committee at UIA said compulsory local marine insurance presents immense benefits not only for importers but the country at large.
“As insurers, we know this will help protect and grow Uganda’s economy. Economy can’ t grow without insurance. Any goods that are damaged or lost are a leakage from the economy. If for example we say, a year, shs100 billion worth of goods is lost in imports, either stolen, or damaged, that is a big loss from the economy. If these goods were insured, it means there is no loss as insurers will pay back these people,” Bukenya says.
“A person who has been importing goods, let’s say worth shs3 billion and the goods are lost because they are not insured, they might go out of business. The ripple effects of this are many as the taxman loses on taxes, families are affected, workers laid off among others. With compulsory local marine insurance, the leakages out of the economy will be blocked leading to growth of the economy.”
Below are excerpts from the interview;
Why has implementation of compulsory local marine insurance taken long?
Yes, it has taken this long, because when it first came out, probably we had not done enough to reach out to all the stakeholders. People needed to be sensitized about local marine insurance and is benefits. Some stakeholders were saying, we have our marine insurance which we are getting outside and so we don’t need local insurance. Others were not sure about marine insurance and how they are to pay. We decided there was need to engage traders, associations, KACITA, importers, shippers and all stakeholders. We had to inform them of the advantages of local marine insurance and why it is compulsory.
Which gap does local marine insurance seek to close?
For example we have mandatory insurances like motor third party and workmen's compensation but many people say it is a big cost to them but it is there to protect them from liabilities if they were taken to court. Insurance comes in and pays. For example, if an employer gets injured at your place of worker, as an employer, if you are taken to court, you will have to pay. Probably you would have paid a premium of shs10 million but that liability might even cost you shs100 million. Sometimes if you don’t things compulsory, people might not know the advantage that accrues from them.
The same thing is happening with marine. People lose out on goods, for example, there was an incident where we had a client who imported two containers and ships collided and one of them sunk. One was docking and another leaving Mombasa. On that ship, there were clients who were more than five. One who had two containers , when the ship sunk he had taken insurance from India and another from Jubilee Insurance. Jubilee processed his payout but he kept demanding for the other insurer where they had placed the risk until he got tired. The foreign insurer kept asking him several questions and he eventually gave up .
The goodness of marine insurance being compulsory in the country is that insurers are here in Uganda, we have the regulator in Uganda and as long as that claim is payable, there is no way you wont get paid.
Also, marine insurance also has several categories including Class A, B and C. Class A is what we call all risks. These other classes have what they are covering but exclude a lot. An importer in Uganda will import goods and because they want to make it cheaper including insurance, they will take maybe class C and as the goods are coming, there is a wash over and are damaged but such a risk is not covered by class C.
The importer will lose out. When sitting as an industry we said since the pool is big and it is compulsory, we shall get more risks being covered and reduce on rates.
With mandatory marine insurance, average rate is lowers, the cover is extensive as we try to see we don’t have any gaps. When a claim happens and the insurer is within the country and says you are not eligible for payment. There is a window for appeal at the Insurance Regulatory Authority which has a complaints bureau. The experts come in , sit and see whether you are eligible for payment or not. If claim is payable, there is no way you won’t be paid, yet our regulator here in Uganda cannot enforce insurance outside of the country.
What impact do you see local marine insurance cause on the economy?
For us as insurers we know if it is made compulsory, there will be immense benefits. When losses happen and importers are paid, it will be a form of advertisement for Uganda’s insurance industry .
When you pay someone, probably that client has other risks with them but were not taking insurance. Now, if they take compulsory marine insurance and they are paid, clients will now know insurance is real. Those who were not insured will be encouraged to get insured. They will insure their vehicles, businesses, life insurance and many others. It will help us sensitize the populace the insurance is important.
As insurers, we know this will help protect and grow Uganda’s economy. Economy can’ t grow without insurance. Any goods that are damaged or lost are a leakage from the economy. If for example we say, a year, shs100 billion worth of goods is lost in imports, either stolen, or damaged, that is a big loss from the economy. If these goods were insured, it means there is no loss as insurers will pay back these people.
A person who has been importing goods, let’s say worth shs3 billion and the goods are lost because they are not insured, they might go out of business. The ripple effects of this are many as the taxman loses on taxes, families are affected, workers laid off among others. With compulsory local marine insurance, the leakages out of the economy will be blocked leading to growth of the economy. It is going to increase penetration of insurance.
What steps are insurance players taking to take full advantage of marine insurance?
We have come up with a consortium where everyone is participating on equal share. If there is risk of shs1 billion, it will be shared among all insurers. It is something small that they won’t feel it. Any risk that comes to this country, there is enough capacity for insurers to pay claims and very fast.
We have a big capacity as insurers and each one of them has treaties which are supported by re-insurers within the country and outside. You will find a company like Jubilee Allianz, Sanlam, UAP , Britam and many others having these treaties. Each one of them could be having of a capacity not less than shs30 billion per risk that they have at any one time any person is importing. If you put all the capacities for these insurers, I think we are in excess of shs300 billion and I don’t know how many times one will import items worth shs300 billion. Even the oil guys who have been importing will not be doing it in one lot. We have the capacity for this.
The capacities for next year can even go in excess of that (shs300 bn) and this means there is no risk we cannot cover. Even previously before coming together as a consortium, we would cover items together by getting support from other friendly insurance companies within the country. We have enough capacity as we don’t even need outside assistance.
Insurance Regulatory Authority can’t give licence to any player without capacity. Therefore, all licenced players have that capacity and there is no item which can be imported and doesn’t fall in that capacity.
As a market, all insurers have gone to clients we have with us and told them about compulsory marine insurance. This will help even those who have been getting marine insurance abroad. We are telling all players that as an industry , it is high time we sensitized our clients and telling them about the February, 1, 2025 date. We are telling our members to be proactive . As insurers we are going to get business from our clients whom we have been insuring for other classes but have not been taking marine from us.
We are sensitizing the clients that come February, 1, 2025 and you don’t take marine insurance from local players, you are going to pay a higher penalty than local insurer would have charged you. The penalty is going to be one percent( of goods insured) yet on average the rate charged for local marine insurance is around o.3%. These insurers will be going to clients to tell them about benefits of local marine insurance.
What are you doing to ensure sustained growth of insurance industry?
One of the things we need to do to grow penetration and sustain the growth is digitalization. The regulator has always been pushing for that. All companies should start selling insurance and find people where they spend most of their time.
People are always on social media. Even in offices, you find someone is working but also checking their smartphone. The biggest population in the country are youths who love their phones, even when moving on streets. We need to target them. As insurers, anyone who will not go digital will lose out. We need to sell our insurance digitally in that a person who needs travel insurance doesn’t have to walk to your company. They just have to click on their phone, mobile money is there, then pay and get their travel cover.
Someone might reach airport and realise they didn’t buy travel cover. As they are seated at the airport, they should be able to buy their travel insurance. Those small covers can be bought on phone. I understand you might not be able to buy a big cover for like a factory or big complex on phone but at least the information should be there that if anyone wants your services, they can reach you. We have to sell insurance in the space where majority of the people are.
We have to make insurance simple. Put it in the simplest language. Many of the principles of insurance are more than 100 years. It is one sector which has taken long to change yet people’s needs are changing. Insurance has to be answering people’s problems. Many years we didn’t have phones and people were not using ATMs but this has changed. People are losing money through their phones. Are we offering cyber cover? Those are solutions we need to come up with and not doing insurance we used to do many years.
We have already started engaging the institute of languages to translate some of the policies in local languages. We will do in Luganda, Runyakitara, Luo and a language in eastern. We want to change the language to a local one to explain insurance in easy terms. We want to put insurance in a simple language that people understand so that they appreciate.
Predict the performance of marine insurance in a few years to come
I see marine insurance to become one of the fastest growing types of insurance in Uganda. By making it compulsory and paying claims, many people will take it. There is a growth which we have already started seeing before the d-day.
Source : The Nile Post (click here to view)