Why Ugandans are afraid of insurance sector and what needs to be done about it

Raymond Mugisha

A colleague of mine who recently chose to exit their insurance policy before its maturity was unprepared to hear that they could not access the full amount they expected.

They were thus introduced to the explanation of the concept of “surrender value” for the first time, three years into their policy tenure.

Although surrender value was mentioned in their policy contract, they did not know its applicability until that point.

The insurance trade involves more technical details and jargon than many other financial services disciplines.

Owing to this, the ordinary consumer of insurance services is averagely ignorant of many of the features found in their policy contract.

Also, in some instances, policy contracts do not carry the full exposure of implied conditions binding the insurer and the insured.

A look at insurance penetration in the country, shows a growing curve. In 2017, Uganda’s insurance penetration was reported at 0.81 per cent.

This was in comparison to an African average of 2.96 per cent. In 2018, market premiums grew by 17.46 per cent to hit Shs855 billion, surpassing the growth recorded in the previous year by 2.71 percentage points.

Nevertheless, the 2017 insurance industry report acknowledged that the public remained largely apprehensive about the operations of the industry, although the sector’s operations are taken seriously at policy level. The need to entrench reputation and trustworthiness was emphasized.

One of the reasons for the above-mentioned apprehension is that the public is not well-informed about how insurance works.

Technical jargon and related details, not known to the regular client, coupled with lack of deliberate explanations to consumers as to how these apply to their policy contracts is a recipe for contentions, especially at the time when consumers report claims. This happens often.

41 percent of complaints filed with the insurance regulator in 2017 related to delays to pay clients their claims, and this normally is a result of misunderstandings around what clients perceive as their entitlement under policies they hold, and what insurers recognise as the customers’ privileges under the same policies.

Often, clarification of the implication of some clauses within contracts gets done after claims have been logged with insurers and this creates a perception of bad faith on the part of insurers, if the clauses disfavour clients.

The cure for the problem

In legal principle, there is normally nothing wrong with the policy contracts issued by insurers. Clients just do not understand the contracts well, in many instances.

That is why occasions of insurers winning cases against clients are not that rare, when contestations end in court. Insurers win a number of cases legally, but hurt their reputation further with many an extra case they win.

For a sector that is working hard to grow trust and positive perception within the market, legal correctness should be relegated to second place, in the interest of ensuring that clients fully understand the entitlements and exclusions of their policy contracts, to avoid disagreements.

Whereas individual insurers could select to implement an own model in which full explanations are made to clients prior to contracting with them, this may be difficult due to realities of how the industry operates.

For one, more than 30 per cent of insurance business runs through brokers who play the role of professional aggregators for different insurers.

It is not feasible to expect brokers to run with different specifications prescribed by various insurers for the above purpose.

Also, a chunk of the business runs through insurance agents, who are remunerated through commissions paid off the insurance premiums they win for insurers.

In their instance, making elaborate pre-sell explanations of policy details to clients is less important than closing sales.

For the above reasons, the insurance sector needs to have in place consumer protection guidelines spelt and enforceable by the regulator.

Such guidelines, among other content, are usually designed to communicate an operating environment of fairness, reliability and transparency.

They demand that service providers do not incorporate complex technical jargon in contracts, without fully and demonstrably explaining them to consumers. 

They may also require that all implied exclusions from policy contracts are disclosed to clients, in advance, or at least what a particular policy specifically covers is exhaustively explained.

In instances where clients are incapable of understanding the explanations on their own, they may designate representatives that will then receive the explanations on their behalf.

Such guidelines will, apart from serving the interests of clients, also help the industry to avoid some contestations with clients.

The industry will reap in improving perceptions that consumers hold of it currently. This will in turn positively influence the growth agenda of the industry and improve insurance penetration in Uganda.

The relevant requirements would have to be implemented by insurers themselves, brokers and enforced for agents by insurers they are attached to.

Raymond is a Chartered Risk Analyst and risk management consultant