Rwanda insurers register losses due to low premiums, high claim rates

Friday October 21 2016

A car that was involved in a road accident is towed from the scene in Kigali. Motor accidents on Rwandan roads have contributed to the increasing insurance claims eating into returns on equity. PHOTO | FILE

Rwanda’s private insurance players have plunged into losses as a result of high claim ratios and underwritten premiums.

Rwanda has 12 private insurance players, however data from National Bank of Rwanda shows that the written premiums are growing marginally from Rwf28 billion in June 2015 to Rwf31 billion June 2016.

Statistics shows that at least 79 per cent of the premiums were spent on paying claims, meaning the 12 private insurance players shared Rwf7.4 billion.

The revenue was not big enough to prop up the sector from posting loses with underwriting profits plummeting to negative 6.8 per cent in June compared with the negative 3 per cent registered in 2015 during the same period.

“A combination of fraud, price undercutting as competition picks up and the industry not having a cap on claims is partly responsible for high claim ratios in Rwanda,” said Esdras Nkundumukiza, the commercial director in charge of SMEs at Soras, one of the leading insurance companies in Rwanda.

The National Bank of Rwanda in its latest monetary policy and financial stability statement attributes the deteriorating performance to the failure of private insurance players to observe prudential norms and to meet the required corporate governance issues.


The issue of price undercutting however has raised debate among the industrial commentators with some insisting that globally insurance do not charge same fee. Besides automobile insurance, insurers annually have to file their rates with a regulator who will approve or reject the rates if it feels the insurer did not provide sufficient justification for the new rates.

The central bank further says the poor performance of the insurance sector is due to to inefficient operations, maintaining inadmissible insurance receivables and a general lack of innovation.

According to the central bank, the insurance firms in Rwanda are selling the easy to manage general insurance products like car cover and fire, a market which is still small.

Besides, insurance players say claims for motor vehicle cover have increased with the increasing number of accidents.

“The claims we receive are from public passenger vehicle transporters. The drivers are under pressure to meet the daily revenue targets, so they lose concentration.
However, James Norman, head of insurance at KPMG East Africa says the Rwanda insurance sector faces a regional challenge.

“The challenges are to respond to the risk of disruption in the value chain and have an agility to respond to changes in traditional distribution; this means investing in tech solutions, building capacity and driving an agenda for change that ensures better products and more inclusion,” said Mr Norman.

Mr Norman further suggests that insurance players adopt what he called “more flexible front end solutions around better pricing to reflect the risk whether it is micro or main-stream and that in turn will create better trust and drive up premiums.

Despite these challenges, data from the central bank shows that in general, the insurance sector’s total assets increased 11.6 per cent year-on-year, from Rwf295 billion in June 2015 to Rwf329 billion.

The industry total capital improved by 9 per cent, from Rwf218 billion to Rwf238 billion, in the period under review. For the same period, the total written premium increased by 16 per cent, from Rwf47 billion in June, 2015 to Rwf55 billion, during same period this year.