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Insurance industry underestimating rural market potential
2005-09-14 08:00:21
By Mireny John
It is now ten years since the insurance industry was liberalised in Tanzania. The move, made explicit in order to allow private sector players inject their capital and expertise by the new Insurance Act (1996), was seen by stakeholders as a positive policy reform measure aiming to invigorate the industry and tape its contribution to Gross Domestic Product (GDP).
The number of private firms which provide various insurance services in the industry has been growing steadily over the years.
Records show that, as an indication of industry’s growth, thirteen insurance companies are in the trade—which include the state owned National Insurance Company (NIC), 50 brokers and well over 300 agents.
Last year, the industry realized a gross premium of Tshs.87bn, mainly drawing cash flows from non-life insurance which accounted for 80 per cent of the total. The balance of 20 percent was contributed by life assurance line of cover.
The Commissioner for Insurance,Mr. Israel Kamuzora, estimates premium from life and non-life insurance for the fiscal year 2005/6 to hit Tshs.100bn.
While the number of new private industry players and corresponding premiums’ growth seems to be telling a long story, the sorry part of it arises from the fact that insurance industry’s contribution to total GDP is just a single percent!
The situation is even more appalling as it happens that all other economic indicators have been positive, especially a managed single digit inflation and a steadily growing economy.
Analysts are therefore justified to lament that the industry is yet to make significant contributions to the economy.
Facts on the ground attest that insurance companies are afraid of penetrating rural areas where 80 percent of the population resides and offer insurance services focusing on education, medicare and agriculture produce insurance cover.
At one time in mid 1990s, the ailing NIC introduced livestock insurance cover on the market whose early undertaking proved to be a success, though recent evaluation of the policy results has not been made public.
One of the major hindrances to rural penetration was lack of feeder roads and power to facilitate the operation of businesses using information and communication technology.
These obstacles are gradually fading away as more debt relief resources are directed towards upgrading rural roads while taxes have been waived on solar power equipment to make them affordable in rural areas.
While insurance companies have basically remained metropolitan in character, they have equally shunned away from providing life assurance policies, leaving NIC almost alone in this risky line of business.
The recent entrance onto the market of the African Life Insurance Company provides a challenge for others to follow.
In the same token, the anticipated strategic investor in NIC now under divestment must be seen able to bring the necessary capital and expertise in improving life assurance policy covers.
The outlook of insurance business in Tanzania is rosy, more so now that an agreement has been reached for the establishment of Tanzania Reinsurance Corporation (Tanre) from next year.
Yet, more needs to be at the institutional level to improve the working environment. Regulation of the industry is poor, the main piece of legislation being the Insurance Act of 1996 and the accompanying rules and regulations.
Currently, the industry practices a system where clients are given 60 days for payment of credit.
The system of inspection is limited to on-site inspection and often no thorough risk evaluation is done nor is compliance to solvency benchmarks.
The sector lacks actuarial support, thus operating without a scientific basis for determining mortality rates, insurance premium rates, or an early warning system for detecting problems of solvency.
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