Developmental legislation, not tax exemption will grow insurance

What you need to know:

  • How many vehicles are running on Ugandan roads? How much would accrue in premiums if all were to be comprehensively insured?
  • What would be tax component of this income? How many people would be employed? What would be the investment potential of insurance companies from such premiums?

Ms Miriam Magala, the chief executive officer at the Uganda Insurers Association ( UIA) is quoted by the media rooting for tax exemptions in the sector. Ms Magala is right and wrong here. She is right from the generalised perception that tax exemptions are an essential catalyst to investment and therefore economic development. Whereas tax exemptions may be essential at a given time in the life of a given business or industry, what the insurance sector in Uganda needs today, is developmental legislation. This is what will drive the deepening and widening of the sector, with the attendant fruits and benefits. By developmental legislation, we mean deliberate legislation aimed at fostering economic transformation through select catalyst economic drivers. And the insurance sector is one of these drivers on two major fronts: one, minimising or absorbing the impact of calamities that befall the uninsured (individual, family, business, institutions), and two, the savings generated in the industry (premiums) are a reliable source of domestic investment and borrowing.

Insurance companies are among the key institutional investors in listed or even unlisted companies across several sectors. Let us begin with the low hanging fruits. Matters mundane. What if all motor vehicles in Uganda were to have comprehensive insurance as a legal requirement, the way third party insurance is?
What impact would this have on our economic development? Besides minimising the impact of losses suffered from accidents or theft, the premiums generated are one sure way of growing domestic savings for investment and borrowing. With the vehicle population in Uganda growing exponentially each year, (albeit being the mitumba class), there is untapped wealth here. And all it will take is an Act of Parliament, et voila.., we shall be there!

Another key sector that requires developmental legislation in respect to insurance is the housing sector. From residential, commercial and institutional buildings, all should have compulsory insurance against such risks as fire and burglary. Recall the Owino and Park Yard fires a few years back or the recent one in Lugazi? Billions are lost and lives are irreversibly shattered in such situations. With insurance, the impact of such calamities is mitigated.
Equally essential is life and health insurance. Someone recently wondered why it is easier to save or fundraise for death than for life. ‘Why are bereavement funds among the growing sub-sector in Uganda?’, she wondered.
Health insurance in Uganda is long overdue. Given the nature of our economy (68 per cent informal), legislation for compulsory health insurance must go alongside legislation for the re-instating of graduated tax, where 20 per cent of the amount collected should go into the health insurance kit, managed by an insurance company.

The buck, therefore, stops with Uganda Insurers Association. The starting point is demystification of the concept and practice of insurance among Ugandans, including the elite and educated. By whatever means appropriate to each social class, once insurance is understood and appreciated, it will become one of the cornerstone drivers of Uganda’s economic transformation. And instead of advocating for tax exemptions, UIA should be running seminars weeks- on-end, with facts and figures of what we stand to reap from legislating for comprehensive motor insurance for example.
How many vehicles are running on Ugandan roads? How much would accrue in premiums if all were to be comprehensively insured? What would be tax component of this income? How many people would be employed? What would be the investment potential of insurance companies from such premiums?
This is how the private sector lobbies and influences policy decisions .
Over to you UIA.
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