Life business hands East Africa insurers lifeline

Tuesday October 15 2019

A car is towed away from an accident scene in Kigali. In 2015, insurers conducted a fraud risk assessment as it was slightly higher than the regional average of 21 per cent. FILE PHOTO | NMG


East Africa’s life insurance business is experiencing an upward growth trend fuelled by the increasing demand for life products among the fastest growing middle class as general insurance business’ largest classes—Motor and Health—reels from severe losses and fraud, according to a new survey.

The survey by consultancy firm Deloitte which was released this month, however, shows that group life faces slower growth compared with other business classes within the life insurance largely due to price wars that have been prevalent among the industry players.

According to the Insurance Outlook Report (2019/2020) for East Africa motor and medical business classes are among the most loss-making businesses and therefore, insurers should investigate other emerging business classes that have a potential for growth to diversify their business mix.

Cost of premiums

As a result, the rising costs of fraud presents insurers with the challenge of being unable to adequately price risks, leading to deteriorated returns to equity.

It is estimated that fraud accounts for about 25 per cent and 33 per cent of the total cost of insurance premiums in Kenya and Tanzania respectively.


In Uganda and Rwanda, it accounts for about 10 per cent and five per cent of the cost of insurance premiums respectively.

The report, however, notes that Kenya’s life insurance market has experienced growth both in the level of direct premiums as well as in the equity held by industry stakeholders in the last five years.

“Life insurance premiums have been increasing on an annual basis as the demand for life insurance products rises. There has been a record of positive returns on shareholder’s equity in this timeframe. The return on equity has been varying year on year with a decline recorded over 2017 to 2018,” says report.

In Tanzania, the report notes that has been a persistent positive year on year growth in gross written premiums in the life insurance business over the years 2012-2017.

And although equity values have been on the rise, returns on shareholders’ equity have been fluctuating year on year, registering a low of about 25 per cent in the last two years.

The report adds that although group life has been largely contributing to growth of the life insurance market in Tanzania, individual life constitutes a larger proportion of the overall life insurance premiums.

In Uganda, the life insurance business has continued to grow faster than the economy, due to the increasing demand for life insurance products by the middle-income class.

Competition and margins

There has also been a steady growth in the level of direct premiums and equity held by industry constituents in the life insurance market in Uganda.

“Individual life is the fastest growing business class, with deposit administration and group life experiencing a slower growth than the combined life business in the last three years,” according to the report.

“The slower growth in group business in Uganda in comparison with Tanzania and Kenya has been influenced by the Pensions Act that is yet to be liberalised.”

The report notes that most players in Uganda’s general insurance market are experiencing low growth and low profitability, with Britam and Sanlam General, the fastest growing players in the market, seeing low and negative profit margins.

“The largest insurer by premiums—Jubilee—has focused on niche business classes that generally experience lower loss ratios than the larger business classes,” the report says.

The report notes that while insurers in the region have experienced better times than their financial performance in the recent years, competition and declining margins pose greater risks for future growth.

“Insurers need to look at ways of remaining relevant in the competitive scene while improving their operational efficiencies using technology,” says report.