After this month, about 800 insurance professionals from all over the world will gather in Uganda to begin discussions on how to improve insurance penetration in sub-Saharan Africa.
As they plan for this forum, the Insurance Regulatory Authority (IRA) indicated that top on their agenda is to improve the figures by getting government to insure its assets and properties. Currently, most of government’s assets and properties are not covered by any insurance company.
However, this is not the first time insurance players have hinted on the plans to insure government assets and properties against risks. The argument that insurance companies lack the capacity to insure such large assets and fears by government that insuring its assets might increase its expenditure bill have stalled the plans of insuring public assets.
“What the central government holds is really manageable when we look at the capacities of the insurance companies,” the chief executive officer of IRA, Ibrahim Lubega Kaddunabbi, said.
For instance, in 2006, MV Kabalega capsized after colliding with MV Kaawa on Lake Victoria. Investigations into the incident later showed that both vessels did not have insurance cover, causing an estimated loss of Shs 45bn to government, reports show.
The incident, then, set the stage on the urgency of having some key government assets insured. According to information from IRA, since government assets are many,they plan to take on assets such as motor vehicles and buildings for a start.
According to a recent ministerial policy statement signed by the minister for presidency, Esther Mbayo, State House needs a total of Shs 233.228bn in the 2017/18 fiscal year budget. A breakdown of the figures indicates that State House alone will be spending at least Shs 7.2bn on motor vehicle maintenance.
Some of the maintenance issues result from involvement in road accidents. For instance, when a government motor vehicle knocks you, according to IRA, you sue the attorney general, a process that may be costly and time-consuming for some victims.
Section 49 of the Motor Vehicle Insurance Act 1989 states: “It shall not be lawful for any person to use or to cause or to permit any other person to use a vehicle on a road unless there is in force in relation to the use of the vehicle by that person or that other person, as the case may be, a policy of insurance in respect of third party risks that complies with the requirements of this Act.”
Section 50 of the same Act goes ahead to exempt government vehicles from insurance: “Subsection (1) shall not apply to a vehicle owned by the Government of Uganda.” According to IRA, these are some of the laws they plan to change through parliament to have government assets insured.
“The losses which government incurs now as a result of not insuring is tremendous and this is the case we are making to them,” Kaddunabbi said.
“We have begun discussions with different ministries.”
According to Fred Muhumuza, an economist and researcher at Financial Deepening Uganda, government prefers to operate with that risk saying the “cost of insurance to government would be much higher.”
With a contribution to gross domestic product at a paltry 0.6 per cent and less than one per cent penetration level, according to Ernst and Young, the insurance sector in Uganda is still operating below the sub-Saharan average of 3.5 per cent.
Experts say the promotion of life insurance, medical care, agriculture or micro insurance as well as the growing middle-class may help close the gap.
According to the 2015 industry report from IRA, gross premium underwritten by the 29 insurance companies (21 non-life and eight life) increased from Shs 502bn in 2014 to Shs 612bn in 2015, representing a 21.68 per cent growth. The report indicates that Shs 214bn was paid out in claims, compared to Shs 184.3bn in 2014.
According to Jim Mugunga, the public relations officer at the ministry of finance, government is under no obligation to insure its assets. He questioned whether the insurance companies have the capacity to provide cover for these assets.
“There are certain assets that cannot be insured by these [insurance] companies. There is a lot of gymnastics into this issue [of insuring government assets]. Government assets depreciate. I can’t tell how much the ministry of finance is valued,” Mugunga said.
Meanwhile, players in the insurance sector say they will pull together resources to provide cover for the assets. In areas where the risk is very high, the chief executive officer of Uganda Insurers Association, Miriam Magala, said they will join hands with reinsurance companies.
“We do have the capacity to underwrite those assets. Because what happens is that the whole market pulls its resources, which will ad- dress the capacity to make sure they can undertake that risk. But also, we will work with external markets to make sure the risk is appropriately covered as well as managed,” she said.
One of the things the insurance industry is grappling with is the low public confidence in its services.
Magala said: “So, if the government does insure its assets, it will definitely build public confidence to take up insurance covers. It will build capacity in the market because they will be able to underwrite a lot more risks.”