What you need to know:
Coverage. Penetration is currently below one per cent.
Kampala. Uganda’s insurance industry is expected to grow by 8.2 per cent in the next two years according to a report by financial services firm Ernst and Young (EY).
This is mainly due to a favourable investment climate that has encouraged several foreign players to join the market mainly through mergers and acquisitions.
Last year, a number of foreign insurance companies entered Uganda mainly through mergers and acquisitions. Liberty Insurance, a South African-based company, bought 51 shares from East African Underwriters; Old Mutual and UAP merged while Prudential bought Goldstar Life Insurance.
“Ugandan respondents were somewhat more likely to point to overall economic growth as a driver of insurance growth, and were far more likely to cite shareholder demands as a top challenge.
“They were also much more likely to cite data analytics and cross-industry collaboration as the most important innovations to generate future growth,” the report titled; ‘Waves of change’ points out.
The report released this month, surveyed 125 companies and regulators in the sub-Saharan region, including Uganda.
Uganda is ranked fourth out of the seven countries surveyed in terms of growth.
It is at par with Tanzania and Malawi while Kenya lags slightly behind at 6 per cent.
According to the report, insurance penetration in Uganda is less than 1 per cent and represents just 0.6 per cent of the country’s GDP.
The report says premium volumes were $200 million (Shs675 billion) in 2014, and per capita density was $4.60 (Shs18,900).
Even robust growth will bring density per capita to $5.60 by 2018, according to Oxford Economics forecasts.
Experts say the high level of insurance claims have slowed down the underwriting process thereby reducing the penetration.
Mr Steve Osei-Mensah, the East and Central Africa Financial Services advisory leader at EY, while presenting the report, said the insurance industry in Uganda is currently under penetrated by insurers.
He, however, noted that “the market has steadily been growing due to emergence of middle class economy and growth in GDP.”
Unlike other countries, the report is predicting that “…the insurance sector will outpace the average economic growth.”
The report also said the opportunities being created through mobile online underwriting platforms are particularly significant for respondents in Uganda, Zambia and Ghana who see mobile underwriting platforms as particularly promising.
The insurers in this market have particularly adopted the effective use of mobile phones to register customers for insurance covers.
According to Insurance Regulatory Authority, Uganda has 30 insurance companies, 12 health membership organisations, and 27 brokers.
One of the challenges the industry faces is fraud. Speaking to Daily Monitor on the sidelines of the launch of the report in Kampala last week, Ms Miriam Magala, the chief executive officer Uganda Insurers Association, said as a sector, they are grappling with fraud, especially in motor sector and health.
However, she said: “Investigations are going on to address fraud.” Adding that as sector, they are sharing information among themselves to fight it off.
The report also notes that scarcity of clients is one of the challenges the insurance sector faces.
However, it said “this can be addressed by education.”
Mr Muhammed Ssempijja, the EY country leader for Uganda, said the report was based on responses from insurance regulators and players in different markets.
According to the EY report, the threat of terrorism also looms over Uganda, and political risks as well as high inflation have weakened the currency. These uncertainties co-exist with favourable prospects for regional trade and improvements in human capital. With inflation expected to continue at a moderate 5 per cent to 7 per cent annually over the next four years, insurance companies might find the increasingly sophisticated and well-heeled Ugandan urban middle class an attractive target.