Insurance companies in the country have unanimously increased motor insurance premiums by up to 73 per cent effective January 1.
The mandatory third party insurance policy has increased by 40 to 73 per cent, while the comprehensive package has increased from 3.5 per cent of the value of the vehicle to 4.5 per cent.
The owner of a Mercedes Benz 1998 model who is on a third-party policy and has been paying Rwf130,000 ($152) per year will now be paying Rwf224,900 ($263) in the new tariff structure.
The president of the Association of Insurers in Rwanda, Gaudens Kanamugire, said the decision was reached following a 2013 study that showed insurance companies stand to incur losses if they don’t revise the premiums upwards.
“The study showed that there is no way any insurance company operating in the country can expect to make profits going by the current tariffs, therefore as an industry we decided to revise them upwards,” said Mr Kanamugire.
He said the previous rates have been in place since 2003 and so based on market shifts, the revision was overdue.
“Market prices have changed almost ten-fold since 2003 when the current rates were established,” he said.
Mr Kanamugire said insurance companies have been making losses for the past five years and the situation has been made worse by rampant fraud cases especially in motor insurance sector.
Although the final cost will be determined by the in-house pricing of the insurer and might vary from one company to another, the increment has already sent car owners into a panic.
“How can they increase vehicle premiums by such a high percentage, what is going to change for us?” said Rehema Tendo, a car owner.
Mr Kanamugire said that even though car owners may find the new premiums a burden, they have to understand that that is the cost of the service.
He also said the rationale used for the increment was based on the lack of a minimum wage, which has exposed the industry to high compensation claims that have been increasing over the years.
“Because there is no minimum wage the compensation in a case where a person is hit by a car is determined by a judge. In 2009, daily compensation for an injured party was Rwf500 ($0.5) per day, currently it has reached Rwf3,000 ($5) per day,” said Mr Kanamugire.
He added that the increment was made in consultation with the National Bank of Rwanda, which is the industry regulator.
“The regulator gave us the green light to institute the new tariffs,” said Mr Kanamugire.
Affected car owners
The most affected car owners will be those on the comprehensive motor insurance package as the annual rate will increase significantly.
Analysts predict that many car owners will likely to shun a comprehensive package for third party where the annual premium is relatively less.
A commuter coaster that has been paying Rwf400,000 ($468) for third party insurance per year will now pay Rwf692,000 ($809) per year.
An owner of a Toyota Corolla model 1999 who has been paying a third party policy of Rwf75,000 ($87) per year will now be paying Rwf129,750 ($151).
A Yaris model 2002 has been paying Rwf350,000 ($409) per year for a comprehensive policy, but this will significantly go up in the new tariff structure.
Alex Bahizi, the CEO of Bank of Kigali general insurance said they are happy with the new tariffs.
“The motor insurance sector has been making the most losses, yet it is the biggest insurable asset in the country at 60 per cent,” said Mr Bahizi.
He added that besides motor insurance, the cost of other insurance products is likely to change soon.