INSURANCE IN UGANDA: An Analysis of the Insurance Amendment Act, 2011
As a general rule statutes dealing
with the regulation of insurance business do not or have not defined the
contract of insurance to obviate the danger of excluding contracts within or
that should be within their scope. However a definition is essential as
insurance business is closely regulated. In the words of Channel J, “a contract of insurance then must be a contract for the
payment of a sum of money or for some corresponding benefit to become due on the happening of an event,
which event must have some amount of uncertainty and must be of a character more or less
adverse to the interest of the person effecting the insurance”[1].
The creation and enforcement of
insurance contracts impinge at every turn upon the public interest and vitally
affect the social and economic welfare of individuals[2]Insurance
is a small world that reflects the purposes of the larger world outside it.[3]Therefore
legal rules regulating the insurance industry merit careful analysis and study.[4] The Act, like many other laws was can be
understood only in the context of its historical development.[5] The
Insurance industry in Uganda is underdeveloped, with very young regulatory
framework.[6] Formal
insurance sector legislation, regulation and supervision have only been
implemented over the last decade. Until recently, the insurance industry
operated effectively unregulated, with no compliance culture. The Insurance Act
was passed in 1996 and the Insurance Commission was established as regulator
and supervisor in 1997. One law, the Insurance Act (Cap 213 Laws of Uganda,
2000), governs all insurance business and is supplemented by the Motor Vehicle
Insurance (Third Party Risks) Act (Cap 214 Laws of Uganda, 1989) that, amongst
other things, makes third party insurance compulsory for all vehicle owners.
The 1996 Act was amended by the
Insurance (Amendment) Act, 2011 [7] was passed in March 2011 and it sought close the loopholes
in the law, ensure clarity of the law and to address challenges like corporate governance, professionalism,
innovation of new products, and more efficient and effective operations so as
to promote insurance business among others. The changes
brought on by this new Act can be gleaned from the long title restated in
similar terms as in the bill title above. The amendment seeks to address
challenges that have been affecting the growth of the industry. [8] Some of the critical changes include the following;
The Act amended
S.1of the principal act by replacing risk inspectors with risk managers. Risk, in insurance terms, is the
possibility of a loss or other adverse event that has the potential to
interfere with an organization’s ability to fulfill its mandate, and for which
an insurance claim may be submitted .Risk management ensures that an
organization identifies and understands the risks to which it is exposed and also
guarantees that the organization creates and implements an effective plan to
prevent losses or reduce the impact if a loss occurs.[9]Risk
management provides a clear and structured approach to identifying risks.
Having a clear understanding of all risks allows an organization to measure and
prioritize them and take the appropriate actions to reduce losses. It makes an
organization a better risk to insure. However, the ambiguity as to the
definition of insurance business still continues.
The Act changes the name of the
regulator to Insurance Regulatory Authority of Uganda.[10] The new Act strengthens the Authority and entrench
its autonomy and its ability to oversee the growth and
consolidation of the market, encourage mergers, ensure financial soundness
without compromising its independence and maximize consumer protection. The
justification is also to harmonize with the East African neighbors, the
Insurance Regulatory Authority of Kenya , and Tanzania Insurance Regulatory
Authority.[11] Ms
Kiwanuka[12] who
blamed the low purchase of insurance products to limited awareness was speaking
at a function where the former Uganda Insurance Commission officially rebranded
to Insurance Regulatory Authority of Uganda (IRA)."Insurance product development and sensitization of the public
to take up insurance cover is key if we are to grow insurance penetration. We
hope that the rebrand will re-engineer IRA to perform much better." [13]
Insurance penetration in Uganda is about 0.6 per cent, the lowest insurance
penetration in the region, compared to Kenya's 2.6 per cent, and Tanzania and
Rwanda's 1 per cent respectively. The Insurance Regulatory Authority vice
chairperson, Ms Mary Jane Musungu, however, said inadequate funding to the
authority hinders it from effectively carrying out important tasks such as
awareness campaigns. The Authority's annual budget from the Ministry of Finance
is about Shs400 million.[14]
The Act tends to delink the Insurance Commission
from supervision by the Bank of Uganda and bring it under the supervision of
the Minister of Finance. [15] It was argued that the central bank had told
the committee they already had much work to do. "They told us that supervising insurances has been an extra burden to
them yet they wanted to concentrate on their original mandates,"[16]Parliament
rejected a move by a committee report which sought to mandate the Minister of
Finance to supervise insurance companies, taking the responsibility away from
the central bank. An insurance supervisory role cannot be entrusted with a
politician who is merely appointed by an individual but to leave such work to
central bank technocrats.[17]
To provide for health insurance as one of the classes of
non-life insurance business to be regulated under the Insurance Act. As a result, insurance
companies that apply to transact health insurance are no longer licensed to do so under section 5 (b) (xiv)
of the Act, under “any insurance other than specified above”but specifically under S.5 (b)(xiiia) or (xiiiab).The
justification is to cater for the
regulation of all organizations engaged in the provision of health care
by insurance or membership .[18] Private health insurance – although still not
widespread – has contributed towards reducing child mortality, improving
maternal health and curbing HIV/AIDS, malaria and other diseases.[19] It aims to expand health coverage for
poor Ugandans and increase Uganda’s chances of meeting its Millennium
Development Goal health targets. Unfortunately, the scheme’s proposed
first-track beneficiaries are civil servants who do not exactly match Uganda’s
category of the extreme poor, who according to the Uganda Insurance Commission,
will be covered through adequate adoption of micro insurance programmes.[20]
In addition, the Commission had
included the operations of health management organizations under the purview of
the Act and therefore, the regulation function of the Uganda Insurance
Commission which is designed to improve
the monitoring of the operations of those organizations. Adopting the proposal
to bring them under the regulation of the Authority is expected to lead to
better health facilities. This will help reduce child mortality, improve
maternal health and contribute to the national overall effort to combat
HIV/AIDS, tuberculosis, malaria and other diseases.[21]
The New Act also provides for micro
insurance and bancassuranse as one of the classes of non-life insurance business
to be regulated under the Insurance Act and allows for the involvement of banks
in the selling of insurance products.[22] The
micro insurance plans of the Uganda Insurance Commission are an innovative way
for the industry to reach out to the extreme poor.[23] Low
penetration can be regarded primarily as the result of the low and irregular
incomes of the Ugandan population, which implies that little disposable income
is available to dedicate to insurance. . There is a Low overall insurance
penetration and formal market dominates. The insurance market currently serves
no more than 8% of the population. Only 3% of the adult Ugandan population
currently uses traditional (non-micro) insurance. The insurance industry in Uganda has high
market uncertainties as a result of foreign entry, and implementation of
insurance regulation over the past decade. And as the focus was initially on
achieving stability, micro insurance was not yet a high priority. In Uganda the
share of micro insurance exceeds that of traditional insurance a fact which can
be explained by the extremely high poverty level where the per capita GDP as at
2006 was Ushs. 725,342 and 2007 was only ushs 801,515.[24]
Bancassurance
covers a wide range of detailed arrangements between banks and insurance companies,
but in all cases it includes the provision of insurance and banking products or
services from the same sources or to the same customer base[25].
“Bancassurance is the provision of
insurance and Banking products and services through a common distribution
channel and/or to the same client base.”[26]
Its benefits include increased income generated, in the form of commissions
and/or profits from the business,reduction of the effect of the bank’s fixed
costs, as they are now also spread over the life insurance relationship, and an
opportunity to increase the productivity of staff, as they now have the chance
to offer a wider range of services to clients. They provide more complete solutions than
traditional standalone banking or insurance products. For example, a
policyholder takes out a permanent assurance with the aim of funding future
education costs and can also take
out loan (mortgage) and assign the life
policy to the bank as beneficiary. For the bank the benefits are increased
sales and a more widely based relationship with the customer than would be
possible with bank products only.[27] Because of the possible wide spread of branches
across the country, bancassurers can have a competitive advantage over
traditional insurers (non-bancassurers), derived from the provision of customer
service through automated teller machines (ATMs).
The Act provides for an increase in
fines.[28]S.95
as amended now provides for a an increased fine of 15 currency points replacing
the shs15000 in the old Act. This is a welcome provision that will carry a more
deterrent effect considering that the inflation
and changed times has rendered the old fine obsolete in achieving the
deterrent and punitive effect required thus boosting compliance with
S.95of the Act to
protect the policy holders and ease their monitoring and governance .
Under
corporate governance , S.11 of the principal act was amended to provide
that a member of the board of directors
of an insurance company shall not at the same time serve as a member of the
board of the board of directors of another insurance company or of an insurance
brokerage in Uganda .The justification was to narrow the scope of restriction against
cross directorship in any insurance company and financial institutions,
security brokerage companies ,to enable the insurance sector benefit from the
scarce human resource capital with relevant knowledge ,expertise and skills in
insurance and actuaries matters ,who prefer to remain in financial institutions
under securities markets which are more
profitable ventures .[29] It also prohibits the transaction of the business
of life insurance and non-life insurance under a composite company.
In addition, by providing the
circumstances under which certain officers are prohibited from holding office
in an insurance company it aims at promoting professionalism because the sales
staff who generate the premiums have in the past been accused by the insuring
public of mis-selling and failure to explain basic policy terms mostly because
they are not well versed with what they are selling.[30]
"With the failure of financial
institutions in the US and Europe, we have learnt that no organisation is too
big to fail and that corporate governance and transparency are very important,
more so with organisations with group structures,"[31]No
agent shall be licensed without the requisite qualifications finished.
S.8 of the principal act was amended
to enhance development of the sector
by increasing the amount available to an
insurer by substituting 50% for 10% of
the security deposit and where an insurer suffers a substantial loss arising
from liability to claimants and the loss is such that it cannot be met from its
available resources, the Authority may,
after ascertaining the nature of the claim and upon application made by the
insurer, approve the withdrawal from the security deposit of the insurer. This
opens up the possibility of rehabilitating an insurer to maintain their
solvency.
The new Act also provides for an
insurance training levy[32]
where for each policy issued there will be a levy paid by the consumer to
develop the Insurance Institute of Uganda for purposes of Training and Certification.
This will enable the Institute to develop a curriculum and facilitate training
of more insurance professionals[33]and
thereby create awareness and professionals that can run the insurance business
in this country. “You go to a number of insurance and other financial
institutions to find they are only run by foreigners because for a long time,
we couldn’t get enough professionals in this country with the right level of
experience and exposure and the reason for that we didn’t train any. If we
don’t train, we’ll continue to import talent.”[34]
The Act establishes policyholders
‘compensation fund[35]which
fund shall be used to compensate the policy holders of an insolvent insurer.[36]This
will help increase trust and a sense of
security in insurance companies by clients.
It establishes the Insurance Appeals
Tribunal .This receives, hears and determines disputes in the insurance sector
without prejudice to the rights of the parties to appeal to the High Court and
other supervisor courts in the administration of justice.[37] This
underscores the essence of expedient trials for complainants, will decongest
the traditional courts and is associated with benefits of tribunals in general.
S.64 as amended requires compulsory
cessions from all insurance companies to Uganda Re, a local reinsurance provider [38] which will compete with other EAC reinsurers and expand sound insurance and reinsurance
activities in Uganda. Uganda Re is a limited liability company that was incorporated [39]however,
it‘s not been operational since its incorporation. The Authority[40]
plans to develop a policy whereby a working and well-established national
reinsurance company can stop capital flight caused by the lack of such a
domestic provider. For
instance, from 2002–2006, nearly half of the annual non-life premiums – 42 per
cent – generated in Uganda left the country; in 2006 this represented an
outflow of $25 million.[41]
In conclusion, several reasons for
the low return of net premiums in the form of claims to clients are high costs
associated with relatively weak and expensive communications and payment
infrastructure. Insurers are small by international standards, making it
difficult for them to spread their fixed costs. The Government of Uganda needs
to liberalize the pension sector in the near future to break the monopoly
currently enjoyed by the National Social Security Fund to boost the life and
pension business of the insurance services sector, whose performance is
currently poor release funds previously under government control for long-term
investment by the industry and increase the premiums locally written by
domestic players. There is also need for a comparative review of applicable
insurance legislation and regulation across all Partner States with the
Partner States agreeing on common minimum capital levels, solvency requirements
and investment guidelines that would apply to all companies licensed to provide
insurance services in all their categories in the future EAC Common Market to
ensure a level playing field for all insurance companies in East Africa in
addition to guaranteeing consumer rights in each of the Partner States by
avoiding regulatory competition among them. In the USA, Insurance
companies that provide individual and small group policies will be required to
spend 80 percent of their premium dollars on medical services, free preventive
medicare and intricate details like pre-existing conditions have been tackled
while in Uganda, the Act is silent.[42]
BIBLIOGRAPH (2001)
Bibliography
J.Birds & Hird (2001);Modern insurance Law 5th Edition Ed Sweet & Maxwell
.L.Kinball, Spencer. The purpose of Insurance Regulation; A
preliminary inquiry .
kulabako, Faridah. "Uganda ;Insurers must
improve innovation ." The Moniter, October 17th, 2011.
Robert .H.Jerry. Understanding Insurance Law.
2004.
REFERENCES
JUNITED NATIONS ; United
Nations conference on trade and development(UNCTAD) ;National Services Policy Review
UGANDA(printed in Switzerland)2011
JMICHEAL MAC’CORD; Micro
Insurance in Uganda ;Acase example of
the partner –agent model of microinsurance provision ,
NHHP/FINCA
JTHE STONE JUSTICE GARY
DOWNESAM;The Administrative Tribunal
Role in Insurance Industry (11th April 2006)
JThe East African Newspaper ;Paul Mwijagye. “THE DELAY IN
AMENDMENT OF INSURANCE ACT HINDERING DELAY IN DEVELOPMENT OF INSURANCE INDUSTRY
,THE INSURANCE COMMISSION SAID”(Accessed 5/11/11)
JINSURANCE INSTITUTE OF
UGANDA; “Overview of the insurance industry”
JTHE MONITOR(KAMPALA); Mecry
Nalugyo& S.Naturinda “Women want
divorce bill passed as insurance bill is cleared “
JWEIKAMA EMMA “The Insurance Industry in Uganda ;The
importance of the industry and as an intermediary in developing countries”
[1] Prudential
Assurance CO. Ltd Vs Inland Revenue Commissioner [1904]2 KB 658 AT 663,
[2] (Robert .H.Jerry 2004)II
[3] (.L.Kinball n.d.),
[4] Ibid.
Jerry.,
[5] Morris
&Read P.(V)
[6] Weikama
Emma “The Insurance Industry IN
Uganda” WEIKAMA EMMA TIERRA GROUP INC.Published at Sooper Articles - Free Articles
Directory http://www.sooperarticles.com
[8]PAUL
MWIJAGYE “Insurers call for fast amendment to the insurance act” The East African newspaper .Saturday, 5
November 2011
[9] Controlling Costs with Risk Management
[10] S.9
amended S.14of principal Act
[11]M
Tumwebaze; Hansard; 2nd reading .23/03/2011
[12] Finance
Minister
[13] Kulabako
Faridah. The Moniter; “Uganda ;Insurers
must improve innovation”.
[14] ibid
[15] Parliament of Uganda eNewsletter Vol. 4 Issue No. 24 Monday March 21, 2011 - Friday March 25, 2011
[16] The committee vice chairperson, Mr Robert Ssebunya,
‘Uganda:
Women MPs Want Divorce Bill Passed As Insurance Bill is Cleared’ article
by Mercy Nalugo and S. Naturinda.24 March 2011(All Africa.com)Last
accessed on 05/11/2011)
[17]Aruu County MP Odonga Otto; ibid
[18]Mr
Tumwebaze; Hansard
[19]UNITED
NATIONS ; United Nations conference on trade and development ;national services policy review; UGANDA 37
[20] ibid 47
[21] ibid
[23]United
Nations ibid
[24] ibid
[25] Münchener
Rück ,Munich Re Group ‘Bancassurance in Practice’P.2
[26]ibid
[27] Ibid .6
[28] S.47 Of New Act
[29]Tumwebaze Hansard.2nd
reading
[30] Ms. Evelyn Nkalubo-Muwemaba,
the acting commissioner Uganda Insurance Commission (UIC)(as she then was)
[31] ibid
[32] S.94A(2011 ACT)
[33]. Mathew Koech “The business of selling promises; on why insurance is a necessity for
all”
Sat,11.05.2011 (INTERNET Last accessed on 05/11/2011) Last updated05:32:26 PM
GMT
[34] ibid
[35] S.71A
[36] wagame
[37] Hansard; Wednesday ,23 March
,2011
[38] S.33
[39] 7 November 2000
[40] Previously Uganda Insurance
Commission
[41] UNITED
NATIONS ; United
Nations conference on trade and development
;national services policy review UGANDA
[42] New Health Reform Law that
affect individuals ;Health Insurance
that kicks in for 2011
