Insurance uptake in Uganda: Why legacy models aren’t enough

It is midnight and Muzeeyi Bizibu and wife are meant to be asleep because they have to wake up at 5am to go to work. However, Bizibu’s chest is yet again bothering him. He can’t seem to breathe well and is having coughing fits. It might be pneumonia. This is the third time in a year this is happening. The Bizibu family ponders what they should do. They have already used up their own savings dealing with the last few health issues they faced, and Ms Bizibu already asked the savings group she is part of for money to treat her three-month-old daughter’s fever during the rainy season. They now must wait for the expected harvest in two months before they can afford to pay for the visit to the clinic for Bizibu.

Scenarios’ such as this are unfortunately typical for many Ugandans with young families and dependents. Further, about 48 per cent of the population are dependent on agriculture, and 15 per cent are casual labourers. This means they experience seasonality in their incomes, which disappear quickly in the face of a backlog of expenditure and credit built up over time. This is until they can sell their harvest or earn some money from short stints of work. In the face of crisis, many must rely on well-wishers and the kindness of their community for support; a resource that can be depleted too quickly.

Insurance would be the best sustainable alternative in this scenario. Uganda’s insurance market is well-regulated with 31 insurance companies, 35 insurance brokers and more than 1,500 agents. Yet formal uptake of insurance among adult Ugandans is incredibly low. Being able to plan and mitigate future risks is of universal concern. Formal insurance exists for this purpose. In Uganda, however, most people seem to be comfortable without formal insurance, with only about one in every 100 Ugandans, reporting having formal insurance cover for health, business and other risks.

Interestingly, FinScope 2018 found that while formal insurance uptake might be low, informal insurance is on the rise. Nearly 40 per cent Ugandans, including the salaried, instead rely on informal mechanisms to deal with risks such as seen in Bizibu’s wife. Ugandans find more safety in village savings and loan groups – the main vehicle for informal insurance - where funds in these groups are set aside to cater for emergency needs of their members.

However, these informal mechanisms in their current form are limited both in the scope of what they can cover and the number of people they can protect.

Traditionally, insurance is designed to cater for salaried employees with scheduled insurance deductibles. Most people with insurance, besides the legally mandated Motor 3rd Party insurance, are covered as part of employment agreements. This type of insurance may, therefore, not be suitable or appropriate for a populace in which only 3 per cent of the adult population is employed in the formal sector, pushing majority of the traders, casual labourers, and farmers, among others, towards “self-insurance”, leaving them highly vulnerable to perils that could plunge them deeper into poverty. The resultant mismatch between the supply of formal insurance services and the needs and demands of the people raises the question - what can we do to bridge this gap?

Worldwide, commercial insurers are extending insurance to low-income market segments. According to the International Labour Organisation’s impact insurance facility , a little over 60 per cent of the world’s largest insurance providers offer a microinsurance service covering more than 500 million risks up from 139 million in 2009. Africa alone has seen an increase in adoption of microinsurance of 44.4 million people and properties covered in 39 countries between 2008 and 2012; a 200 per cent increase in insurance uptake. Microinsurance is creating a unique opportunity for deep market penetration.

The Philippines, which was able to achieve 23 per cent insurance coverage, is an interesting example. The introduction of microinsurance products in the market in 2012 coupled with innovative distribution networks such as outlets that sold motorbikes, a popular medium of transport, to integration of life and accident insurance policies with purchase of assets at low monthly payment rates, saw an uptick in insurance rates.

Similarly, in India, AIG sold microinsurance to women through a micro agent delivery model called Community Rural Insurance Groups. These groups help obtain trust in the community while reducing the overhead costs of distribution of microinsurance by leveraging community structures rather than sending agents on ground to sign up people for insurance policies.

Closer to home in Rwanda, the digital health service company, Babyl, is leveraging artificial intelligence and mobile technology to better assess individual risk (one of the major trends in insurance technology – InsureTech), increasing the uptake of Rwanda’s recently passed universal health insurance scheme. With two million people registered, the service is accessible over both smart and feature phones. It allows customers to make telephone consultations and receive recommendations on whether they should go to the clinic, helping reduce the anxiety of making an unnecessary trip to the clinic.

After all, health insurance is of no consequence if no one is willing to utilise the services. By providing value upfront, people are more likely to spend a little more to go to a clinic and benefit from health care.

These approaches are not exactly formal insurance products. They are not business as usual but are a hybrid of traditional and non-traditional insurance and indication of the type of outside the box thinking necessary to make insurance more palatable to the general public. These models are revisiting legacy business and distribution models while seeking to tailor products to the needs of the customers and winning their trust while at it.

These products are designed for the masses, priced reasonably and leverage new distribution channels such as the mobile phone, whose penetration into the populace is far greater than physical infrastructure like roads and railways. Innovation such as these push the current boundaries of formal insurance and create new frontiers for the insurance industry.
Uganda’s government has through the National Financial Inclusion Strategy made a commitment to increase insurance uptake to 7 per cent of the population by 2022.

Mr Sande works with Insurance Regulatory Authority. The article was co-authored with Mr Joel Muhumuza, working with Financial Sector Deepening Uganda.