Medical insurance is now Uganda’s leading insurance product by gross premiums written, after escaping the 2014 wave of de-mergers when composite firms were required to choose between life and non-life products.
Medical insurance was exempted from this rule.
Data from the Insurance Regulatory Authority (IRA) shows that sector premiums grew by 24.5 per cent in 2018 to Ush200.5 billion ($52.8 million), from Ush161 billion ($42.4 million) in 2017.
The sector contributed 23.4 per cent to the industry’s gross premiums written in 2018, overtaking motor insurance—the only product whose premiums have consistently remained above the Ush100 billion ($26.3 million) mark, but whose growth has been sluggish in recent years.
However, opinion is divided on whether the growth of medical insurance is a good thing for the industry, as it could be contributing a large percentage of the losses incurred by insurance firms, with only nine out of 21 that sell non-life covers reporting a profit in 2018.
IRA chief executive Ibrahim Kaddunabbi Lubega said that companies have had to undergo years of reorganisation and closures to become healthy enough to meet customers’ claims.
Data from 2013 shows that medical, marine and aviation, public liability, worker compensation and engineering insurance products are likely to lead to company losses.
In the motor insurance sector, claims under third party remain low, with the maximum amount that can be paid to a person knocked down by a car capped at Ush1 million ($263.5), and thus it contributes the largest percentage of premiums to motor insurance firms.
Drivers involved in accidents rarely make compensation claims because the process is cumbersome. They prefer to pay for the damages out of their own pockets.
But the sector has experienced sluggish growth since a 2013 government decision to impose a 700 per cent stamp duty on the statutory third-party insurance. A year later, the government removed the 18 per cent VAT exemption on insurance products.
“This slowed the growth of motor insurance since enforcement by the police is poor and the higher tax rates depressed demand for the product,” said chief executive of Britam Uganda Allan Mafabi.
Mr Lubega said that medical insurance uptake has partly grown because corporate institutions routinely acquire covers for their employees.
For most corporate companies, Mr Mafabi said, VAT can be reclaimed. So only non-corporate individual consumers lose money when they pay VAT on insurance products.
Medical insurance is also the only product that is still sold by all segments in the industry following the 2014 de-merger.
According to Mr Lubega, this has helped to increase the gross premiums written for medical insurance, adding that the phasing out of composite companies has helped to increase the penetration of life insurance.
Composite insurance companies were until 2014 the norm in Uganda, selling both life and non-life covers.
“The de-merging of insurance companies helped to grow life insurance,” said Mr Lubega.
The share of premiums underwritten for life insurance has increased from 22.9 per cent in 2017 to 25.3 per cent in 2018.
Mr Lubega attributes the growth to the de-merging of composite companies.