Insurers must have risk management strategy- IRA

Volunteers try to save people who were involved in an accident at Nabusanke along Kampala- Masaka road last year. Whereas there have been public concerns regarding Motor Third Party insurance, the law regulating motor vehicles is obsolete. PHOTO BY RACHEL MABALA

What you need to know:

The insurance industry recently released a raft of new regulations to improve the sector. Daily Monitor’s Christine Kasemiire interviewed the Insurance Regulatory Authority of Uganda’s Senior Communications Officer Mariam Nalunkuuma, about the relevance of the amendments in the insurance law. Excerpts below:

The sector has undergone a number of changes especially in the legal framework governing it. Why were the amendments made?
The repealing and amendment of the previous law on insurance was necessary because it was not adhering to the International Association of Insurance Supervisor’s Insurance Core Principles (ICPs), which are currently adhered to by 240 countries. The ICPs are the benchmark for all insurance business in the world and Uganda is obliged to adhere to them to compete on the world market.

The old law was also overhauled to empower the Authority to effectively set standards, implement and enforce the law; harmonise insurance laws within the East African region; provide for corporate governance principles and practices; embed best practice provisions for Risk Based Supervision as well as streamline the Act fulfilling the requirements for Anti-money laundering and Terrorism financing.

The previous insurance law had not incorporated the recommendations relating to the anti-money laundering and counter financing of terrorism, which was exposing Uganda for blacklisting by the International community.
There are a number of salient features in the Insurance Act 2017, which stakeholders need to familiarise with, to facilitate industry innovation and growth. With the new Act, there shall be representation from the Uganda Retirement Benefits Regulatory Authority and Capital Markets Authority following the cross-cutting regulatory requirements of the players.

You recently engaged stakeholders in discussing the new regulations. What were some of the most important introductions that will affect the sector? (also explain the relevance of regulations)
The previous law which was compliance based involved checking for and enforcing observance with set rules in form of legislation, regulations or policies which were mainly applicable while licensing an entity. However, the new Act shall shift to Risk-Based Supervision (RBS) which is gradually becoming the dominant approach to regulatory supervision of financial institutions and sectors around the world.

This approach is comprehensive, with formally structured systems that assess risks and gives priority to the resolution of such risks within the financial system. To protect the interests of the policy holders, the Act through RBS regulations will, for example, require companies to allocate enough resources to cover the risks undertaken.
Based on the financial institutions’ risk profile, the IRA shall determine where to allocate more of its supervisory function, resources and time.

The new law sets in place strengthening of Risk management and internal control measures. Whereas the previous law was not providing for adequate administrative controls, the new law has reinforced the governance and management framework apportioning responsibilities to shareholders, directors, senior management and key persons in the control function.
Specifically, every insurer and HMO shall be required to establish and maintain; a risk management function, a compliance function; an actuarial function; an internal audit function and any other as shall be determined by the Authority.

To improve the supervisory review and reporting, the new law requires that records shall be kept for 10 years after the end of the financial year to which they relate.
In terms of cash and carry policies on premium payment, insurance companies will no longer sell insurance policies on credit to its customers. The ‘no premium no cover’ policy is part of the measures to reform the industry, where insurers will have to collect premiums upfront before providing insurance cover for any class of insurance business.
Hitherto, it has been noted that some unscrupulous people move from one insurance company to another, to take insurance cover on credit and never pay. Likewise, insurers have been providing cover to customers without any premium paid.

So, insurance agents may not receive a cheque in respect of premium unless the cheque is payable to the insurer. In addition insurance brokers are forbidden to accept cheques or other payable money orders unless they are payable to the insurer.
Insurance brokers are now required to remit the cash premiums not later than the next working day and without any deductions of commissions.
Likewise, the insured (client or customer) is obliged to pay full premiums payable under the insurance contract on or before the inception of the policy or renewal of the policy.

Ms Mariam Nalunkuuma, the senior communications officer at Insurance Regulatory Authority of Uganda.

How can you ensure that Ugandans appreciate motor third party insurance?
While enacting the Motor Vehicle Insurance (Third Party Risks) statute, in 1989, government’s desire was to provide an affordable social protection to public road users. It aimed at protecting the motor vehicle owner against adverse effects resulting from the use of the vehicle specifically in the event of an accident. Government’s rationale was to assure third parties’ (accident victims) compensation in the event of bodily injuries or death.

Unfortunately, the widespread ignorance on the claim process and the low payout limit of Shs1 million per person; the aggregate Shs10 million per accident; the alleged delays regarding non-payment of claims among others, have all made motorists, vehicle owners, accident victims and the general public to ask why they pay for Motor Third Party Insurance, a compulsory insurance cover required by all motor vehicles with the exception of government vehicles.
Whereas there have been public concerns regarding Motor Third Party (MTP) insurance, the law regulating motor vehicles is obsolete. With the macroeconomic changing environment, it makes maximum liability limits economically unviable.

To address the above challenges, the Insurance Regulatory Authority of Uganda (IRA) in 2015, decided that there was critical need to review the law by either amending or overhauling the current Act.
The IRA received technical support from World Bank to make appropriate changes. This process is still ongoing with a principle paper shared with the Ministry of Finance, Planning and Economic Development. This is aimed at setting up realistic compensation levels and increasing policy holders’ protection.

The IRA and the industry players are proposing to review the liability limits, extend the insurance coverage to personal injuries, death as well as property damage among others. The current law provides cover for only bodily injuries.
To increase the limits, the Authority also proposed that compensation should be set at a fixed sum to avoid any use of claim adjustors and expedite the payment of claims and the minister shall issue regulations on the fixed sum of compensation.

The IRA further proposed that government vehicles should also have the mandatory motor insurance so that victims of accidents involving government vehicles are provided with compensation. Currently, the law exempts government vehicles from the mandatory Motor Vehicle insurance.
The proposed amendments are also considering strengthening the monitoring of compliance by motorists. Currently, although the law requires all vehicles to have motor insurance, only about 40 per cent of the registered vehicles have the required insurance. This is mainly because the present system does not allow for proper control. It relies on the sticker being placed on the windshield of the vehicle and the Traffic Police verifying that the vehicle has a legitimate sticker.
The proposed system of mobile money payment of MTP insurance premium will require the vehicle owners to make direct payments to the licensed insurance company and the passengers will be able to verify by checking whether the registration number on the vehicle has the required insurance coverage.

What does the future of the insurance sector look like?
We hope insurers will design products responding to new demand by emerging and more empowered customers. We shall leverage on Bancassurance, mobile technology and associating insurance with local “trusted” brands.
We shall exploit opportunities in commercial lines (oil, real estate, infrastructure and shipping among others ) driven by GDP growth and regional/ global expansion of corporates. We shall also tap into cyber insurance.

Your last word?
The Authority encourages the general public with insurance related complaints or if they are dissatisfied with insurance service providers to lodged their complaints at the IRA complaints bureau for redress.


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