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Tuesday, January 09, 2018 

Can Bancassurance redeem Uganda’s insurance sector

Insurance Regulatory Authority Chief Executive Officer Lubega Ibrahim Kaddunabi (Right) handing over a Bancassurance License to Stanbic Bank's Mweiheire.

KAMPALA, UGANDA- Stanbic Bank Uganda Ltd became the first banking institution in Uganda to be granted a Bancassurance license by the Insurance Regulatory Authority of Uganda.

This followed the passing into law of the Financial Institutions Amendment bill 2016 which included a provision for Bancassurance and the subsequent approval of the regulatory guidelines by the Bank of Uganda BOU.

The Financial Institutions Act 2016 specified that the Insurance Regulatory Authority IRAU would be responsible for receiving applications and licensing financial institutions to conduct Bancassurance business with authorisation from the Central Bank. 

What is Bancassurance?

Bancassurance is a relationship between a bank and an insurance company, aimed at offering insurance products or insurance benefits to the bank's customers.

In this partnership, bank staff and tellers become the point of sale and point of contact for the customer.

Bank staff are advised and supported by the insurance company through wholesale product information, marketing campaigns and sales training.

The bank and the insurance company share the commission. Insurance policies are processed and administered by the insurance company.

This partnership arrangement can be profitable for both companies. Banks can earn additional revenue by selling the insurance products, while insurance companies are able to expand their customer base without having to expand their sales forces or pay commissions to insurance agents or brokers.

According to Alhaj Kaddunabbi Ibrahim Lubega, the Chief Executive Officer of Insurance Regulatory Authority of Uganda, the introduction of Bancassurance as a strategic distribution channel of insurance is one of the most significant recent developments in the Financial Services Sector in Uganda.

He says that it will increase access to insurance services amongst Ugandans in different parts of the country through the vast bank branch network.

“The high level of confidence and trust generally placed by the public in banks makes them particularly well positioned to attract consumers to purchase insurance products from their distribution outlets. It is through such partnerships that the insurance industry can grow and increase its penetration in Uganda,” says Lubega.

State of Uganda’s Insurance Sector

With Insurance penetration levels still below 1%, the sector is yet to realise the performance levels worth celebrating.

The Gross premium underwritten by the insurance industry increased from UShs 502billion ($140million) in 2014 to UShs 612billion ($170million) representing a composite growth of 21.68%. Of this, Non-life business accounted for 75.87% of the total industry premiums, life business accounted for 16.31% while Health Membership Organisations contributed 7.82% of the total premiums according to latest industry figures by the Insurance Regulatory Authority.

Whereas the life segment still lies at the margin (just like it is the case with most African countries – except South Africa whose life insurance density ratio is more than twice (222%) the world average), life Insurance premiums have continued to grow relatively much faster at a rate of 35.67% in 2015 while Non-life and HMOs grew by 21.47%.

Uganda has 29 licensed insurance companies (21 Non-life & 8 Life), 1 Reinsurance company, 11 HMOs, 30 Brokers, 21 Loss Assessors/ Adjustors/ Risk Mangers, and 1350 Agents.  The intensive competition has meant that Companies have become more innovative in terms of product design, product distribution/delivery and above all customer service.

What opportunities does Bancassurance and Takaful insurance possess?

Lubega says Bancassurance and Takaful insurance introduces very useful platforms of reaching an expanded market at relatively lower costs.

“In a business whose operational model is least understood, it will be strategic for players to continuously simplify their models and processes in order to improve operational excellence, increase efficiency and create competitive advantage. “Whereas the insurance industry has started gaining good traction and creating value propositions with greater local relevance to market participants beyond the formal sector, this is yet to deliver profitable growth,” says Lubega.

He says insurers will continue to relentlessly drive operational excellence and invest in innovation and sales development to deliver the desired growth.

“As most Ugandans have a mobile phone, buying insurance on a mobile phone is an exciting growth area as it will offer a more affordable way for Ugandans, especially in remote areas, to gain access to insurance products. Beyond the mobile phone, Digitalization as a key driver of business success and encourage players to integrate it into all dimensions of their business and processes.”

Gaudioso Kabondo Tindamanyire the Chairman of the Insurance Regulatory Authority says it is imperative to be cautious of the fact that it is difficult to achieve great performance in a fiercely competitive industry without being efficient.

“It is irresponsible to waste critical resources on expenditures that have nothing to do with better servicing clients and building a great company.

“More resources and effort should be allocated to growing your companies through innovation, marketing, hiring productive people, designing the right products that are also profitable and building systems to better serve the customers.

“Otherwise, envisaging profitable, sustainable and properly underwritten growth is a misnomer without a deliberate strategic intervention,” says Tindamanyire.

He says the future of the insurance sector in Uganda lies in re-engineering strategies and processes to protect the companies so that they are strong and able to continue being available for all those who count on them.

What the private sector say about Bancassurance.

Patrick Mweheire the Chief Executive of Stanbic Bank  says the key to the success of this project will involve raising public knowledge and awareness about the various benefits and types of insurance products available through banks.

“Because everything happens under one roof, Bancassurance will provide customers with a one-stop-shop solution which offers greater convenience, savings and choice.

“In addition, the premium prices will be better negotiated and product turnaround times will inevitably improve.

“Bancassurance is an efficient distribution channel with higher productivity and lower costs to serve than traditional sales channels,” says Lydia Kayonde the Head of Bancassurance at Stanbic Bank.

Are Insurance Commission Agents out of Business/jobs

Though the Insurance Regulatory Authority clearly notes that the introduction of Bancassurance is to widen the scope of the industry, commission agents who have been mainly dependant on offering insurance on bank loans will be stressed. They may not necessarily run out of work but will lose out on the loan guarantee insurance policy they have been administering to bank loan clients.



By Paul Tentena, Tuesday, January 09th, 2018