In what is being seen as a radical shift, Uganda’s insurance regulator is considering perpetual licences for insurers from 2020, instead of the annual ones they pay for currently.
The move is expected to save insurance firms millions of shillings in annual licence fees, and cut the cost of doing business.
It will also help the regulator focus on the bigger job of deepening regulatory efforts towards risk-based supervision.
The long-term licences under the new regime may be suspended or cancelled by the Insurance Regulatory Authority of Uganda (IRAU) in case of a breach of regulations.
Besides being in line with global best practices, the development is also a step towards aligning with the East African Community insurance policy.
The regional integration tool was passed by the Council of Ministers and launched about three years ago.
It provides for the issuance of perpetual licences to insurance companies across the region, and periodic licences for intermediaries like loss assessors, surveyors and valuers.
So far, only Kenya and Tanzania have complied with this policy.
“Industry players will be charged a compliance fees instead of annual licence fee,” said Bernard Obel, the assistant director for operations at IRAU.
However, the regulations governed implementation of the new licensing regime are yet to be finalised.
The switch to a perpetual licensing regime promises increased focus on digital surveillance of industry players’ activities, rigorous assessment of quarterly performance reports and full scale risk-based supervision — a regulatory model that monitors real-time risks faced by market players such as liquidity problems and fraud instead of just changes in capital levels, experts say.
“Under the perpetual licensing regime, the Authority will focus more on on-site inspections, risk-based supervision and submission of real time digital performance reports,” said Mr Obel.
Perpetual licensing is among sector reforms introduced under the Insurance Act 2017.
Others are the strengthening of risk management and internal control measures; the introduction of measures to boost liquidity and ease cash flow of insurance companies; a shift to risk-based supervision in order to protect the interests of policyholders; the shift from a private to a public tertiary college; guidelines for management takeover in the event a licence is revoked; and a public sensitisation drive to ensure consumers and prospective clients are better served.
Industry data shows Ugandan insurance companies spend between Ush5 million ($1,342) and Ush6 million ($1,611) per year on licensing costs based on the size of the company, asset base and market share, while insurance brokerage firms pay between Ush500,000 ($134) and Ush1,000,000 ($268).
Insurance agents are charged Ush100,000 ($27) per person in annual licence fees.
Risk managers, loss assessors, loss adjusters and insurance surveyors are charged registration fees of Ush250,000 ($67) and licence fees of Ush400,000 ($107) per year.
Bancassurance agents — commercial banks licensed to sell insurance products — are charged a membership fee of Ush1,000,000 ($268) paid to the Insurance Institute of Uganda, plus an annual compliance fee of another Ush1,000,000 ($268) paid to the regulator.
Key elements assessed during the licensing process include audited annual financial statements, competence levels of the senior management team, provision of a security deposit valued at Ush4 billion ($1,073,760), valid contracts signed with reinsurance companies, asset schedules and availability of good office premises.
“The shift towards a perpetual licensing regime does not give us any excuse to sit back. The IRAU is already implementing a risk-based supervision strategy that requires us to submit quarterly returns for regulatory review.
“Under the existing regime, insurance companies are obliged to apply for new licences in October while fresh licences are issued in December,” said John Murungi Lintari, chief executive of Sanlam Life Assurance Company Uganda Ltd.
He added: “However, this approach is tedious because the regulator keeps asking for a lot of information that they already have.
“But in the long run, a risk-based supervision strategy is likely to boost corporate governance in the industry and improve asset-to-risk exposure ratios.”
The industry regulator has licensed 32 insurance companies, 35 insurance brokers, two reinsurance brokers and 24 loss assessors, adjusters, insurance surveyors and risk advisors.
Fifteen commercial banks and one credit institution have been licensed to provide bancassurance services, according to the regulator.
Total assets held by Uganda’s insurance industry rose to Ush1.44 trillion ($386.5 million) in 2017, from Ush1.24 trillion ($333 million) in 2016, according to the latest government data.
Total premiums rose to Ush728.5 billion ($195.5 million), from Ush634.8 billion ($170 million) in 2016.
The insurance penetration ratio, weighed against GDP, stayed flat at 0.8 per cent in 2017 compared with an African continental average industry penetration rate of three per cent.