Tuesday February 27 2018

Are Ugandans ready for micro insurance?

Boda boda riders carry passengers in Kampala

Boda boda riders carry passengers in Kampala recently. Due to the risks associated with their job, boda boda riders should embrace micro insurance. PHOTO BY MICHAEL KAKUMIRIZI 

By Dorothy Nakaweesi

Julius Behakanira has been riding a boda boda for about seven years, earning about Shs500,000 per month.
From this, he saves about Shs200,000 and spends the rest on welfare and family expenditures as well as fueling his motorcycle. The boda boda is his lifeline thus he makes sure that it is properly handled to keep it in perfect shape.

“My boda boda is insured as a requirement of the law. I would not want to get into trouble for failing to meet that obligation,” he says, oblivious to the need to insure his own life because of the dangers that are associated with the nature of his job.
Just like Behakanira, many workers attach less value to insuring their lives not because they don’t care but because they cannot afford the expenses involved.
“I have to first take care of the family and other responsibilities. It is hard for me to spend on life insurance,” he says.

Behakanira’s argument is a representation of what cuts across Uganda and explains why many low-income earners, who would provide an alternative market for insurance, are not part of Uganda’s insurance uptake. The low uptake leaves many low income earners exposed to risks that threaten their existence.
According to a 2013 FinScope survey, five in every 10 adults are exposed to illness while two in every 10 adults lose a family member or relative.

Despite such risks only two out of 100 adults in Uganda hold an insurance policy, which affords them an opportunity to access treatment.
Formal insurance usage, the survey indicates, remains confined among wealthy Ugandans with only seven people out of 100 adults accessing the service. Only 0.8 per cent among low incomes earners have access.
Such a scenario begs for serious engagement through which low-income earners can be recruited into the insurance fold.

These engagements include micro-insurance that seeks to mitigate ways through which low income earners can benefit from affordable products.
According to estimates, there are more than 500 million micro-insurance users in developing countries, an increase that has been attributed to easy access as well as building products that are affordable by that class of people.

“Asia leads the pack of micro-insurers accounting for about 70 per cent of micro-insurance schemes across the world,” Joseph Lutwama a policy, legal and regulatory specialist at Financial Sector Deepening (FSD) Uganda, says.

A 2015 report on the Landscape of Micro insurance in Africa, indicates that micro insurance accounted for 1.1 per cent of the total insurance premiums in Africa with South Africa leading in Africa.
Micro insurance has been established in all insurance businesses such as life, accident and disability, health, property, and agriculture (crop and livestock).

“Any risk relevant to low income households can be covered by micro-insurance,” Lutwama shares.
So is Uganda ready?
Mariam Nalunkuuma, the Insurance Regulatory Authority (IRA) spokesperson, believes Uganda has a great future in regards to micro insurance and the regulatory agency has already issued guidelines to encourage uptake in the sector.

“Majority of Ugandans are low-income earners yet many of them can’t sufficiently afford the products on the market. Therefore, we believe there is need to tap into their potential building products that they can afford,” she says.
The market, she says, has already taken advantage of the products, pointing out that the boda boda insurance products cost as low as Shs10, 000. Other products such as the “aYo” scheme, which is operated on the MTN mobile money platform are taking shape.

According to Joel Muhumuza, the FSD Uganda partner support specialist, many larger insurance companies have built products to take advantage of the market potential.
“Many insurance companies still provide traditional products but have come up with schemes to cater for low income earners with many building on the support of new market products such as bancassurance,” he says. However, Muhumuza says, there is still a lot of work to be done, especially in the area of sensitisation.
“Right now most insurance is provided through employers or obtained as a mandatory requirement. This is not enough and must be worked on,” he says.

The market, he says, has been opened up by the success to new financial products such as Mo kash, which calls for serious engagement at different levels in order for all stakeholders to understand each other.
According to Uganda Insurers Association, this shall provide an opportunity for the growth of a potentially lucrative insurance sector of the economy. However, this shall not be without challenges, which according to Cenfri and FSD Network, present the biggest impediment to the smooth success. Such challenges, Muhumuza says, include lack of sufficient market information and proper segmentation of the people who need micro insurance products.

“Many of these service providers knowing very little or nothing about the behaviors of their target market, which markets its hard for them to develop sufficient products,” he says.
Access to customers
Beyond this, is the inadequate access to consumers, which makes it an expensive affair because service providers have to spend on basic things such as transport and training for the customers to understand them better.

For instance, many of the products are still low on technology and lack advanced technology such as mobile telephony. This makes them hard to access without sufficient segmentation to cater for the requirement of different users. For instance, different demographic lines, such as farmers, may require products that suit them yet they are not sufficiently accessible.

Therefore, this calls for particular segmentation and access where users are able to pick on a product that suits them at their convenience. Customers inexperience with formal financial services is also another challenge which creates a barrier for the anticipated penetration.

“Insurance is a difficult subject that needs patience and understanding. Many people don’t know how to file claims. Such procedures should be eased not to compound issues for low income earners who might not know much about insurance,” Mr Muhumuza says.
Therefore, such challenges point to the need for stakeholders to develop appealing products that go beyond traditional business models to penetrate new markets.

MAJOR CHALLENGES
According to Uganda Insurers Association, this shall provide an opportunity for the growth of a potentially lucrative insurance sector of the economy. However, this shall not be without challenges, which according to Cenfri and FSD Network, present the biggest impediment to the smooth success.
Beyond this, is the inadequate access to consumers, which makes it an expensive affair because service providers have to spend on basic things such as transport and training for the customers to understand them better.
According to Muhumuza, there is need for well throughout products that will not appear as duplication of mobile money but rather a hybrid of new and existing products that provide better solutions.

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