The National Bank of Rwanda (BNR) has thrown its weight behind the recent rise in motor vehicle insurance premiums of up to 73 per cent which caused a public outcry.
The financial sector regulator stated the previous price regime set in 2008 was forcing insurers into losses and did not take into account the recent realities such as the increased cost of spare parts and reinsurance.
The bank also noted there had been an increase in claims for compensation such as bodily injury compensation which rose to between Rwf2,500 ($3) to Rwf3,000 ($3.5) per day from Rwf500 ($0.6) before 2010.
“The change in prices will remove distortions that were threatening to crush this sector. If the sector were to collapse, the consequences to the economy would be disastrous,” said the BNR deputy Governor Dr Nsanzabaganwa Monique.
The industry has been registering losses of more than Rwf6 billion annually largely brought about by motor vehicle covers. Underwriting losses associated with a specific class indicates that the amount collected as premiums is insufficient to cover the claims filed against it.
The regulator was said to have been pushing for a gradual introduction of the new premiums but has now come out in support of the one-off increment.
Insurance penetration in Rwanda has remained at less than two per cent compared with other states such as Kenya at 3.5 per cent and South Africa at 13 per cent. The public blames the financial losses incurred by insurers on lack of innovativeness.
Insurers in the region are yet to adopt pricing strategies that reward motorists with a low claim incentive. This means careful drivers bear the burden for the careless ones through the higher premiums.