Insurance Times Magazine March - April 2016, issue 006 by Insurance Times Magazine

Insurance Times | March-April 2016

From The CEO’s Desk

Why insurance ranks highest as necessity and basic need Dear Readers, LET ME START by taking the opportunity to wish all our Christian Readers a Happy Easter!! In our sixth issue, I feel honoured to share with you my persuit on the value and importance of insurance service in our daily activities. ALTHOUGH MASLOW’S WIDELY acclaimed centuries-old template ranking basic needs and necessities does not overtly include insurance, today’s global perspectives driven by mass consumption patterns and dynamic high stakes modern technology render insurance indispensable and indistinguishable from all critical aspects of human endeavour. Risk is the basic problem with which insurance deals. Without risk, there would be no insurance. Risk represents the ultimate challenge or threat to mankind in every sphere of human life whether at home, work, or play – on land, sea, or in the air. Risk is present in everything we undertake as human beings. Risk manifests itself in many diverse ways and formats, but is widely considered to refer to the uncertainty of loss, or a situation in which a possibility or chance of loss exists. Additionally, risk may be considered to be a situation in which actual results or outcomes could turn out to be different from what was initially expected or predicted. Thus, we talk of a “risky” situation or event to denote a condition with high probabilities of loss, which should otherwise be avoided in the absence

of pre-arranged adequate mitigation devices. At ITM, we consider insurance to be a basic necessity and need due to its efficacy as an effective risk transfer mechanism. By purchasing a suitable insurance product or policy, an individual or corporate entity makes a deliberate choice to transfer risks facing them directly to an insurance company, thereby off-loading and removing altogether the risk burden from their shoulders. This transfer is only validated through payment of premiums to an insurance company. A contract of insurance becomes complete only if the insured pays and the insurer receives premiums. Subsequently, in case of loss suffered by the insured, then the insurer makes commensurate payments to meet the cost of such losses provided the proximate cause of loss was the insured peril. Thus insurance automatically becomes a necessity and basic need through the indemnity it provides to insureds. In the case of an individual person, insurance provides protection to dependants in case of premature death of the policy holder. A policyholder therefore enjoys peace of mind arising from the protection provided through insurance cover. In addition to protection, some categories of insurance policies provide opportunities for realtime investment arising from cash lump sums payable upon maturity. For corporate entities, purchase of an appropriate insurance cover provides

an opportunity to guarantee business continuity without interruptions and other setbacks that would otherwise arise from losses caused by the occurrence of risks such as fire damage, theft or other perils. The diversity and brevity of insurance policies offered by various insurance companies ensures that nearly every type of risk can be mitigated through purchase of an appropriate insurance cover. The three critical conditions to be observed by both parties involved in the purchase of a valid insurance contract can be summarized as: The insurance company must be duly licensed by the regulator The risk to be insured must satisfy established criteria and threshold for risk acceptance, including common understanding by both seller and buyer The insured must possess adequate capacity to pay premiums at set rates and intervals. As a risk transfer mechanism and hence a necessity and basic need, insurance provides a welcome alternative to other risk mitigation measures such as risk retention and risk avoidance. The sector is, equally, a critical fulcrum for propulsion of national economic development initiatives due to availability of the funds it mobilizes for use in development. Sudi Marungu Simba

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Insurance Times | March-April 2016

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C.E.O Sudi Marungu MANAGING DIRECTOR Fatma Abdulrazaq DIRECTOR Sallu Evarist PROJECT MANAGER Omary Aziz MANAGING EDITOR Mwirabi Sise CONSULTING EDITOR Isaac Mwangi CONTRIBUTORS Victor Babatunde, Anne Kiruku, Nelius Njagi, Elizabeth Wanjugu, Addah Zamm, Jovina Bujulu Marketing Zainab Masood, Tumaini Mwaipopo

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The Editor’s Note Dear Reader, I HOPE YOU enjoyed our last edition of Insurance Times. In this sixth edition, I would like to shift your attention to one of the most important products of insurance: Life Insurance Policy. Is life insurance a form of gambling? In gambling, there are two parties, each seeking to benefit from the loss of the other. In life assurance, however, the main objective of the insurer is to protect the insured from any unforeseen loss. When we take out life insurance, death is the risk we are being covered against. There are options where the insured would be the one to benefit from the policy in case they take the term life policies. These policies are mostly used for group policies, with some medical care as rider policies and covering issues such as permanent and temporary disabilities. Another option is a permanent life policy, which includes policies with the likes of whole life policies and universal life policies to benefit your loved ones in the event of death. Apart from the peace of mind to your loved one, you can also take out credit life assurance policies that will cover your debts in case you fail to pay them in the event of death or other natural causes leading to the failure. In East Africa, life insurance penetration levels are relatively low considering the potential that exists. This is attributed to the fact that the communities in the region have not established a savings culture. Also, the insurance industry itself has not been doing well as far as building trust is concerned. Most of the time, the problem arises from customer misunderstanding of the nature of the policy or contract. So, on the part of insurers, the best thing is to look into developing contracts with friendlier

Insurance Times | March-April 2016

language that is more easily understood by the client. This will be helpful for the customers and it will entice them to buy life insurance. Publicity and awareness of the importance of life assurance in Tanzania is very low. It is said that the countries in the region have extremely low life insurance uptake, and those people who have this type of insurance mostly receive it under the umbrella of their corporate entities or as part of the requirements for acquiring a loan. Still there is a large population out there who can receive life insurance but don’t know how it works. Simple adverts can be used to pass information, like, “Pay $1,000 per year and your family gets $2,000,000 in case you die.” This gives income earners a notion of how they can protect their loved ones from trouble in the event of their death. So, insurers need to work on their publicizing skills for life insurance products. To the masses, we are living in a world where insurance has become a basic need for the sustainability of our lives. We need to have all kinds of insurance in our daily lives, and this is for various reasons. Mainly, however, insurance helps to curb our financial worries and have peace of mind regarding any unexpected events. We need to create that savings culture, of which life insurance is a part. The advantages lie at both the level of the individual level and the national economy. This is because insurance savings can be mobilized for development activities that bring in even more gains in the long run. “Create a savings culture. Get life insurance now!” Mwirabi Sise MANAGING EDITOR

From the Nairobi Editorial Desk

South Sudan has opportunities galore; Is insurance ready for the risk? THE ADMISSION OF South Sudan into the East African Community offers an array of opportunities to businesses in the region, including in the insurance industry. South Sudan’s application to join the Community had been pending for some time, and had been delayed by the civil war that started in December 2013. The war pits government forces led by President Salva Kiir against those of his former vice president Dr Riek Machar. While some businesses are quietly but cautiously venturing into the world’s youngest country, many others have adopted a wait-and-see attitude. This is because the political and security situation remains fluid, and it remains to be seen whether the current peace will hold – or is it the lull before the storm? Increasingly, the insurance industry has boldly penetrated areas that were previously no-go zones, going to the extent of covering losses occasioned by acts of terrorism. South Sudan now presents a litmus test, and it will be interesting to see how the industry responds. It is not in doubt, however, that many aggressive businesses in East Africa are willing to take the risk. Hopefully, the warring parties in South Sudan will see that it is in their mutual interest to end the war and embrace peace. Cultivating that environment of peace is part of the dividends that South the Sudanese expect to reap by belonging to the larger EAC entity. But that dividend hasn’t always been forthcoming, going by past experience. In Burundi, for instance, regional leaders could have done more to bring pressure on the conflicting parties to work towards peace. The massive losses that were incurred, the loss of business confidence, and the lost opportunities that the country has had to endure are enormous. How can insurance inspire confidence in such economies? In a region where the current trend is

toward consolidation of power within the ruling elites, in a geopolitical situation where there is conflict from Somalia to South Sudan – and the constant threat that violence could erupt even in relatively peaceful economies such as Kenya and Uganda – the sector must define the thin line on which to tread. That thin thread must of necessity take the interests of the sector into account, considering that insurance is a profit-making business like any other. But insurance is also more than that: It is a stimulator of growth in other sectors, and can mobilize huge funds from pensions and other sources to fund major projects that can spur the economies of countries coming out of conflict. South Sudan needs to rebuild virtually from scratch. This vast country is rich in oil and other resources waiting to be exploited. Not only the infrastructure projects, but even other nascent sectors of that country’s economy will require the services of the insurance sector. Moreover, this vast country will compensate for the low penetration rates in other EAC countries by bringing on board a vast new population. Somalia’s application to join the EAC is still pending, and may be complicated by the matter of terrorism led by Al Shabaab. Once the situation there is stabilized and that country does join the regional bloc, that will present even more opportunities. In a nutshell, the insurance sector must start thinking hard about the kind of products to introduce in the new markets coming on board, especially South Sudan, and create strategies for dealing with the baggage of conflict. Isaac Mwangi is a communications lecturer and consultant based in Nairobi, and is consulting editor for Insurance Times. E-mail: isaacmwangi@ minachariots.com

Insurance Times | March-April 2016

Dear Readers,

Insurance terms should be translated into kiswahili for ease of communication with clients. ...Hapa Utapata insurance policy nzuri...

We value your ideas and welcome any contributions that can enrich public debate on the many issues of interest to our readers. We invite you to send your views, letters, and other contributions for possible publication. The Editor reserves the right to publish or not to do so. Articles may also be edited for clarity and brevity. Please send your contributions to: The Editor Insurance Times Magazine P.O. Box 14310 Dar es Salaam, Tanzania E-mail: sales@insurancetimestz.com

Duh! Polisi???

Letters Feature academic stuff as well

Educate readers on claims

t is an honour to write to you and to thank you for all the information that you provide for those of us who are students. We are humbled to say that we get good materials that enhance our academic understanding. I would like to take this chance to ask the Insurance Times Magazine team to put up a special section where they will be discussing straight academic materials in the magazine. This will enable the students to use the magazine even more as a reliable resource in insurance learning practice. I hope to see this change in your upcoming issues. Douglas Mpangile Assistant Zonal Manager. Dar es Salaam

Tell us what happens in developed markets

nsurance Times is a huge resource for the insurance industry. Before the introduction of the magazine, we as insurance players had no voice; but the magazine brought us a that voice. I work for an Insurance insurance broker and through Insurance Times, I get the chance to know of

Insurance Times | March-April 2016

work in an insurance company and I am very glad to see such a professional magazine in the market. I work in the claims department and have hands-on experience in dealing with clients who do not understand the processes in the industry. It is very frustrating to deal with them at times. Is it possible to have articles that explain to readers how to go about these claims? Thank you for putting out yet another great product. Happy Easter! Julius R. Sambia Dar es Salaam

the trends in the regional insurance business, such as the opportunities and the challenges in the industry. I would like to advice advise the magazine team to get articles from the insurance industries industry in the developed countirescountries for us to learn how and what to do to deevelope our industry. The magazine has become a very good resource for me and I complement compliment you for it. Nelson Mulungi Mwelekeo Insurance Brokers

Contents MAGAZINE

12 Insurance education For 44 years, the Institute of Finance Management in Dar es Salaam has been churning out insurance graduates

16 AKI’s $5b target Association of Kenya Insurers Chairman Justus Mutiga outlines the industry’s strategic focus

24 Funeral policy Ugandans are now beginning to experience a new era, whereby money for funerals does not have to come from relatives and friends

» p.12

42 Takaful spreads From Cairo to Cape Town, Takaful is becoming a hot topic in Africa, and here’s why

38 Islamic bond How sukuk can be used to raise long-term finance without charging interest

58 Telecom tariffs

» p.34

Calling rates set to go down as Tanzania prepares to join Kenya, Uganda and Rwanda in One Area Network

82 Nothing stops Olunga The sky is no limit for young Kenyan player who extends goal spree to Sweden

» p.76

» p.80

Insurance Times | March-April 2016

Insurance

Fraud: D-day as regulator shuts down 70 firms

By Barack Otieno

An upsurge in fraudulent claims has driven the regulator to shut down 70 firms in Kenya’s insurance sector.

n a gazette notice, the regulator said the decision was necessary to stem rising cases of fraud that has been bleeding the sector, especially over the past two years. The regulator said the firms shut down comprised 44 investigating firms, six brokers, 12 insurance motor assessors, one insurance risk management firm, four risk surveying firms, two loss assessors and an insurance claims settling agency, adding that these firms had failed to secure renewal of trading licences. The authority said the shutdown

The insurance business in Kenya is profitable. Kenya represents one of the most developed and well-regulated insurance markets in Africa.

order is effective from 31 January, adding that necessary notification had been issued to all the affected firms. The entities are not required to receive or transact new business since they are not qualified to undertake such business unless recleared by the authority. The gazette notice from the Insurance Regulatory Authority was dated 24 February. Kenya operates the most robust and vibrant insurance market in the East and Central Africa region. According to an Association of Kenya Insurers (AKI) report, in

2014, there were 49 operating insurance companies, 25 of which wrote non-life business only, 13 wrote life insurance business only, and 11 were composite companies underwriting both non-life and life insurance business. There were 198 licensed insurance brokers, 29 medical insurance providers (MIP), and 5,155 insurance sales agents. Other licensed players included 133 investigators, 108 motor assessors, 25 loss adjusters and 24 insurance surveyors. The shutdown means that old business acquired before the closure of the firms, including new business acquired after closure, must now be handled by other licensed companies since the closed entities no longer have the capacity to carry on, transact or handle any business. The shutdown may render claims worth billions of shillings null and void and non-payable, or cause prolonged delays in settlement. A fresh process of vetting claims lodged before and after the closure will be undertaken by qualified companies before authorization for settlement. Most affected will be accident victims and motorists, who will have to wait longer before knowing the outcomes of their claims. Violations The regulator’s shutdown is believed to be a follow-up to complaints raised by insurers concerning collusion between some service providers and accident victims, including motorists, to lodge inflated or non-existent claims.

Insurance Times | March-April 2016

In addition to fraudulent claims, other acts of malfeasance that may attract the regulator’s sanctions, including shutdown of operations, include the following: Submission of inaccurate data or reports Imprudent handling of funds entrusted to a service provider Lack of adequate technical capacity Violation of code of conduct and ethics Breach of trading license terms as provided in the Insurance Act Poor service delivery, including inadequate attention to customer complaints A majority of insurers in Kenya have complained about resurgent volumes of fraudulent claims, especially over the past two years, due to collusion between investigators and assessors with unscrupulous persons. This has bled them dry, with a single loss or even a non-existing loss In some instances attracting multiple claims lodged with an insurer. In order to combat this menace, the Association of Kenya Insurers (AKI) is in the process of creating a new web-based insurance claims clearing portal listing all the country’s insured motor vehicles to facilitate monitoring and vetting of claims before payment is made.

From taking risks to making payments, experts take charge

Risk Surveyor This expert provides advice on the extent or amount of risk to be covered – including any improvements that should be undertaken before a cover is issued. Surveyors are used mainly in fire and burglary insurance.

Risk Manager This role identifies, analyses and recommends control measures – which may include reduction, avoidance, and transfer of risk.

Loss adjuster This professional plays an independent role in assessing the magnitude and cause of loss. Loss adjusters negotiate with policyholders and insurers on the value of claims to be paid. Claims are eligible for payment only if the cause of loss is the insured event.

Motor assessor Insurers rely on motor assessors to provide an opinion on the extent of loss and the best method to indemnify a policyholder for the loss incurred.

Claims Settlement Agent These are used to pursue payments of amounts awarded but not released promptly.

If you are on this list, keep off insurance business - Makove Insurance Regulatory Authority Chief Executive Officer Sammy Makove

By Anne Kiruku

he closed firms include Stely Insurance Claims Settling Agency, which is an insurance claims settling agent. Allied Assessors and Toplis-Harding International, which are insurance loss adjusters, have also been shut down. Allied Assessors, Panal African Insurance Surveyors, Perfect Marine Adjusters, Sterling Marine Surveyors, which are insurance surveyors, have similarly been ordered closed. Oryx Consulting &Risk Management, an insurance risk manager, did not escape the regulator’s wrath either. The insurance brokers who have been shut down are Insurance Brokers

and Coordinators, Jitegemea Insurance Brokers, Leon Insurance Brokers, Widescope Insurance Brokers, Yess Insurance Brokers, and Zawaam Insurance Brokers Ltd. Abalone Insurance Investigators Services, Beam Loss Assessors, Channel Investigation Services, and City Adjusters and Assessors Ltd are among the 44 insurance investigators affected by the move. Kenya Seven Valuers and Assessors, Sonico Engineering, Sony Motor Valuers and Assessors, and United Motor Assessors are among the 12 motor assessors closed down. While releasing the list of the firms

that have now been shut down, Insurance Regulatory Authority Chief Executive Officer Sammy Mavoke said none of the affected companies should receive or handle new business unless cleared by the regulator. “All old and new cases before the affected firms must be handled by other licensed firms since the affected entities have no authority to carry on, transact, do, or handle any new or old business,” said Mr Mavoke. The move by the regulator is likely to trigger another round in the long-standing war between insurance companies and intermediary firms; the former have been calling for fast-tracking of a web-based insurance clearing house portal by the Association of Kenya Insurers, where all covered motor vehicles will be listed and claims vetted before payment is done to arrest the worrying rise in fraudulent claims.

Insurance Times | March-April 2016

Insurance

How IFM brought about reforms in Tanzania’s insurance sector Over 4,000 graduates have passed through the Institute of Finance Management (IFM) since its inception in 1972, making it the premium institution for development of manpower at various levels in Tanzania’s insurance sector.

Insurance Times | March-April 2016

IS S

T PON HIS ST SOR ORY ED BY

ut the institute is not resting on its laurels, and will in 2016/17 be rolling out at least four more undergraduate and postgraduate programmes. Dr Baghayo Saqware, the Dean of the Faculty of Insurance and Social Protection at IFM, said this was in recognition of the role of education in bringing about desired changes and growth in the insurance sector. “When done correctly, insurance education can lead to industry reforms and growth. The IFM curriculum significantly prepares candidates to investigate and solve problems both at a personal and industry level. The classroom education represents a microcosm of the human relationships that constitute the larger community,” said Dr Saqware. The government established the Institute of through Act no.3 of 1972. This was for the purpose of providing insurance education and taking a lead role in preparing Tanzanian citizens for active participation in the insurance sector. During its 44 years of existence, IFM has offered insurance courses at various levels, deliberately designing and conducting them in a practical manner that would nurture good industry practices. Tanzania’s insurance industry has undergone a radical change over the past 20 years. As part of financial reforms, the government enacted the Insurance Act No.18 of 1996 (repealed), which opened up the sector and attracted private insurers into the industry. The Act therefore provided a legal and regulatory system for supervision of insurance companies and intermediaries operating in the country. This dramatic change also led to a greater need for insurance knowledge in the industry, enhancing the role of IFM. The thousands of alumni from IFM took a leading role in shaping the sector; they are to be found in various responsibilities

LIST OF GRADUATES (INSURANCE PROGRAMMES) FROM 2005 TO 2015 Category of award

2005

2006

2007

2008

Postgraduate Diploma in Insurance and Risk Management

2009

2010

2011

2012

2013

2014

2015

TOTAL

107

140

212

253

318

976

BSc in Insurance and Risk Management Advanced Diploma in Insurance and Risk Management

Ordinary Diploma in Insurance and Risk Management Certificate in Insurance and Risk Management

ranging from sales executives to chief executive officers. For example the table 1 below indicates roughly the contribution of IFM as far as insurance education is concerned on various levels since 2005. Taken together, then, these graduates are the engine of the insurance business in Tanzania. For this reason we can safely argue that IFM is the leader of insurance education in the country. Education being a powerful driver of development and one of the strongest instruments for the growth of any sector, IFM has assumed the leadership of insurance education in Tanzania. To date, there are a total of 31 insurance companies (including one reinsurance

140

156

265

252

Certificate in Insurance and Social Protection

TOTAL

273

143

282

152

348

374

468

company) licensed to transact insurance business in Tanzania. These companies are supported by an intermediary workforce made up of over 100 insurance brokers, over 400 insurance agents, and 49 loss assessors and adjusters. The employees of these organizations, to large extent, have historical attachment to IFM. This was not by accident, but by purpose. The insurance education offered at various levels has been set up and continuously improved ever since the institute was established in 1972. The Department of Insurance was established the same year, followed by the Department of Social Protection in 1982, and finally the Department of Actuarial Science in

313

2,186

2010. The sole objectives of the faculty were to conduct training programmes leading to professional qualifications in insurance and risk management, social protection, and actuarial studies at various levels. Since its establishment, the faculty has been able to conduct various courses leading to awards of Basic Certificate, Ordinary Diploma, Degree and Postgraduate Diploma in Insurance, Social Protection and Actuarial Science to an average of 400 students every year. The faculty human resource capacity to train insurance professionals is comparatively above that of many other higher learning institutions. The faculty

Insurance Times | March-April 2016

Insurance Programme

Duration of study

Status

Master of Science in Insurance and Risk Management (MSc. IRM)

1 year

To be established 2016/17

Masters of Science in Social Protection (MSc. SP)

1 year

To be established 2016/17

Postgraduate Executive Programme in collaboration with Insurance Institute of Tanzania

6 months

To be established 2016/17

In place

Risk Management Bachelor of Science in

In place

Social Protection

In place

Bachelor of Science in Actuarial Science

To be established 2016/17

Ordinary Diploma in Insurance and Risk Management

In place

Ordinary Diploma in ocial Protection

In place

Technician Certificate in Insurance and Risk Management

In place

Certificate in Insurance and Social Protection

In place

Certificate of Proficiency in Insurance (COP)

10 weeks

In place

Postgraduate Diploma in Insurance and Risk Management Bachelor of Science in Insurance and

has 20 permanent members of staff. Four of them are PhD holders, 10 are masterâ&#x20AC;&#x2122;s degree holders, five are bachelorâ&#x20AC;&#x2122;s degree holders and one is a diploma holder. Flexible insurance education The faculty currently runs Insurance and Social Protection programmes and expects to establish the following programmes in future: Beyond the classroom IFM runs a special programme to enable sharing of knowledge with industry

and practitioners. The Professional Public Lecture is a newly-established platform for the industry to share with students on best practice, in the process allowing industry professionals to discover talented students for potential placement. This programme has proved to be an excellent platform for knowledge sharing. Recently, the Tanzania Insurance Brokers Association (TIBA) signed a Memorandum of Understanding to conduct Professional Public Lecture Sessions at the institute. On behalf of IFM management, I wish to welcome the general public and ITM readers to the Faculty of Insurance

Insurance Times | March-April 2016

and Social Protection. The faculty provides information and will support you to successfully navigate your way to the insurance and social protection programme of your choice. To succeed in competitive environments, including the insurance industry, the world today requires skills, knowledge and passion. We want our students and general public to gain not just an education, but also discover their purpose. Whatever your reason is for wanting to join IFM, we will provide quality insurance education to help you achieve that purpose.

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| March-April 2016

Insurance

Aiming high: AKI seeks $5 billion in industry revenue Justus Mutiga is the chairman of the Association of Kenya Insurers (AKI). He spoke to Barack Otieno. ITM: As an association, AKI, was created to spearhead the development of a strong insurance industry in Kenya. To what extent has it achieved this objective? Mutiga: AKI has developed the industry over the years through lobbying, partnership with the Insurance Regulatory Authority (IRA), data collection and dissemination, enforcement of the AKI Code of Ethics, and creating awareness of insurance products to the public. The AKI Strategy Plan for the period 2011-2015 had the strategic objective to achieve Ksh200 billion ($2 billion) in industry revenue by 2015. It is estimated that 95 per cent of the target was achieved, which is Ksh190 billion ($1.9 billion). ITM: What is the current state of the insurance market in Kenya? Mutiga: The insurance business in Kenya is profitable. Kenya represents one of the most developed and wellregulated insurance markets in Africa. The market is of interest to foreigners because it is one of the fastest growing. The life insurance penetration is 1.2 per cent of GDP, and non-life is about twice that of life, bringing the total to 3.44 per cent in 2013. The insurance penetration dropped to 2.93 per cent in 2014 after GDP was rebased with a 25 per cent increase. ITM: Apart from a low uptake of insurance products and negative public perception, what other critical challenges exist in Kenyaâ&#x20AC;&#x2122;s insurance market? What is AKIâ&#x20AC;&#x2122;s

Insurance Times | March-April 2016

strategy to reverse the trend? Mutiga: Fraudulent claims are a major challenge. It is estimated that 25 per cent of motor claims could be fraudulent. The AKI strategy on fraudulent claims is to develop a database for insurers to share data on fraudulent claims. Also, IRA has established a fraud investigation unit. Moreover, most insurers chase the middleto-higher income customers to sell their products. AKI has formed a committee to deal with matters relating to microinsurance so that members can develop products for the bottom-of-thepyramid bracket of the population. ITM: AKI signed a memorandum of understanding with five other East African insurance associations to facilitate implementation of the Common M a r k e t Protocol, leading to

standardization and cross-border operations for the insurance sector. What progress has been achieved on this front? Mutiga: The association has already finalized its constitution and is in the processes of developing a strategic plan which will guide it in its activities. The main areas of concern are taxation in the countries of East Africa and laws governing the conduct of insurance. ITM: In 2014, gross written premiums for life insurance in Kenya was Ksh56.9 billion ($569 million) compared to Ksh100.2 billion ($1 billion) for non-life business. What are the main reasons for this imbalance? What measures have AKI put in place to correct this situation? Life insurance is not a basic need for many families in Kenya. Life insurance is considered a luxury and does not constitute most of the family’s budget. Also, life insurance is sold, not bought. Some classes of general insurance are compulsory and so people must take the compulsory insurances. In order to arrest the situation, AKI has taken the following steps. Focused on educating the public on the benefits of life assurance. Lobbied with the government to insure its employees. Pushed for insurance to be taught in schools. ITM: Kenya’s insurance market incurred a hefty increase in net claims in 2014, totaling Ksh82.36 billion ($823.6 million), representing an increase of 25.8 per cent over 2013. What was the cause of this increase and what remedial action has been taken? Mutiga: Out of the total incurred claims, motor insurance contributed 50.9 per cent of incurred claims, and medical insurance 29.9 per cent. These claims are faced with problems of fraud, according to a recent IRA study (“Study on Nature and Extent of Fraud in the Insurance Industry”).

The insurance business in Kenya is profitable. Kenya represents one of the most developed and well-regulated insurance markets in Africa. Justus Mutiga

AKI has advised its members to take the following measures:Medical Insurance: they should use technology (biometrics) to identify their insureds. Developing an Integrated Motor Insurance Database for members to share information IRA has also encouraged the insurance industry to share information on fraud. ITM: Some 39 Kenyan insurance companies did not surrender unclaimed assets by the 1 November 2015 deadline as required by the Unclaimed Financial Assets Authority (UFAA). What is AKI’S perspective on this matter? Mutiga: AKI’s view is that if members have unclaimed financial assets, the law must be followed by surrendering the assets to UFAA. But claims must be documented to prove they are genuine. ITM: The industry lags behind other sectors in embracing modern technology to enhance market expansion, service delivery and customer value addition. What measures has AKI put in place to improve the situation? Mutiga: Influencing directly how our members adopt ICT is difficult. However, ICT is still a critical objective, and the goals need to be focused into activities such as providing common data-sharing platforms. I must commend our members who have embraced technology in the following areas: Making payments; Selling of their products; Serving their customers; andHaving paperless offices ITM: What is AKI’s strategic development plan for the industry over the next fiveyear period? Mutiga: For the 2016-2020 strategy, AKI has set a new strategic focus to champion sustainable industry growth and excellence, with the aim of achieving 6.5 per cent penetration, Ksh10,000 ($100) premium per head (density) and Ksh500 billion ($5 billion) in industry revenue. This will be achieved by focusing on the following four strategic objectives. Maximizing value for customers; Improving operational efficiency; Creating sustainable revenue streams; and Empowering and motivating teams.

Insurance Times | March-April 2016

Insurance

From varied interests, a national insurance association was born

efore 1960, insurance business in East Africa was transacted through five independently-registered associations. The objective was to facilitate maximum convergence and integration in insurance management and entrench best practice across the region based on common procedures and protocols. The five associations are; 1.

The Motor Association of East Africa,

Life Offices Association of East Africa,

Accident Association of East Africa,

Fire Association of East Africa, and

Marine and Aviation Association of East Africa.

Each of these professional associations had its own chairman and constitution. In February 1960, a resolution was passed and four of the associations, namely, Marine and Aviation, Accident, Fire, and Motor, were merged to create the Insurance Association of East Africa as one body catering for general insurance business in East Africa. The Life Offices Association was retained to promote development of life insurance business in East Africa. Council of Kenya Insurers (C.O.K.I) After the collapse of the East African Community in 1977, the Insurance Associa-

tion of East Africa and the Life Offices Association of East Africa were merged to form the Council of Kenya Insurers (C.O.K.I), which was officially registered on 27 July 1979. Local incorporation of insurance companies began in 1978. The Council of Kenya Insurers operated for 10 years, acting as the forerunner to the current Association of Kenya Insurers (AKI).

for day-to-day operations of the secretariat, including administration and financial management. 3.

Public Relations and External Liaison – Takes charge of maintaining good relations and image with all stakeholders, including members of the public. AKI is involved in many corporate social responsibility initiatives, ranging from road safety awareness programmes to reduce accidents, education support programmes and many others for the benefit of society.

Ethics and Self-Regulation – responsible for the association’s own self-regulation and resolution of disputes with external parties.

Committee for liaison between underwriters and brokers – responsible for maintenance of good mutual relations with other related professional bodies.

Micro-insurance (MI) – formed in 2012 to promote the development of micro-insurance and improve insurance penetration.

AKI vision and objectives AKI’s vision is to become Africa’s leading association in the insurance sector. The association’s mission is to provide, promote and champion excellence in Kenya’s insurance industry. The success and operations of the association are based on the corporate values of professionalism, integrity, innovation, flexibility, quality service delivery, and teamwork. Management Structure AKI is headed by a Board of Directors elected by members at annual general meetings. Below the Board of Directors are the following specialized committees: 1. Statutory and Legal Affairs Committee – performs an oversight role on regulatory and legislative environment matters.

Insurance Times | March-April 2016

Secretarial Affairs and Investments – assigned responsibility

AKI operates two distinct councils, namely the General Insurance Council and Life Insurance Council. These councils are charged with oversight responsibility on general and life business, respectively. Currently, AKI has forty six registered members.

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Insurance Times | March-April 2016

Insurance

‘25pc of all money in banks is due to Israel Kamuzora is insurance’ commissioner of the Tanzania Insurance Regulatory Authority (TIRA). He spoke to staff writer Omary Aziz on a wide range of issues involving the insurance industry in Tanzania.

THIS IS SPONSO STORY RED BY

ITM: What are the major roles and objectives of TIRA in Tanzania’s insurance industry? Omary Aziz

Kamuzora: The major role and responsibility of TIRA – like any other regulator – is to set and enforce standards, in this case in the insurance industry. It is a government agency that is charged with ensuring that all those who are playing insurance are doing it on the same rules and regulations. In other words, its work is to set the ground

Insurance Times | March-April 2016

level so that everyone who comes to do insurance business – be it an insurer, broker, or agent – does that using the same standards, conditions, terms as well as expectations. The government has given us powers under the Insurance Act No. 10 of 2009 and charged us with that responsibility. The main objective of an insurance regulator in any market in the world is to protect the policy holders, who are the consumers of insurance. Because insurance

companies have people who are informed about insurance contracts, being the ones who draw them up, and the consumers or policy holders may not know anything about those contracts, we need somebody to protect the rights of the policy holders. So, we are the protectors of the interests and the rights of the policy holders. TIRA came about as a result of the liberalization of the industry way back in 1996. In 1997, the law governing regulation of the insurance sector was enacted and assented by the president of the day. We were established as a department under the Ministry of Finance, but in 2009 the government changed our status to make us more independent and autonomous so as to exercise the powers given under the law more freely without any interference or hindrance. Our headquarters are in Dar es Salaam but we have a zonal office

The 0.7 per cent is the total premium divided by GDP.

a department, and when TIRA was born I was the first commissioner and CEO. So, I am part of the success story and I am glad about it because TIRA has made quite a lot of progress and the industry is growing fast – actually faster than any other insurance industry in East Africa. Our rate of growth is very high. I don’t mean we are the biggest, but our rate of growth gives us the hoe that one day we might catch up with those who are ahead of us. We have been growing at a rate of 18-20 per cent. The average growth rate of an insurance industry is normally around 12.5 per cent. We have faced a number of challenges. Regulation is a new phenomenon in Tanzania, where we were a closed economy in the past. But we have tried to educate the players and we are getting cooperation from them. Everyone wants to do as they wish and we are there to make sure that they follow the law and the standards that we set. The other challenge is that our market – as much as it is growing fast – is not as big as we would have wanted. Therefore, we are challenged in the sense that we need to look for qualified people to be able to do the insurance business in Tanzania. We need to look for people

with appropriate capital levels to establish strong companies. ITM: The contribution of insurance to Tanzania’s economy is at 0.7 per cent of the Gross domestic product (GDP). What measures is TIRA taking to improve this low level? Kamuzora: At 0.7 per cent, it is not too low; who do you compare it with? We are number two to Kenya in the region. Kenya’s rate is 2.4 per cent, ours is 0.7 per cent. We are above Uganda, Zambia and Mozambique. But you should also look at the way that insurance injects a lot of funds into the economy. Last year, 25 per cent of all the money in Tanzanian banks was due to insurance activities; that’s not a small amount arising from financial intermediation. The 0.7 per cent is the total premium divided by GDP. If you could ask every industry to account for how much they contribute to GDP, you will be surprised that mining, with all the hype that we give it, contribute only about 2.5 per cent. Secondly, insurance is behind all the activities that you see; activities like transportation could not occur without insurance.

in Zanzibar, where the deputy commissioner actually sits. The deputy commissioner discharges the duties that I am supposed to discharge in Zanzibar on my behalf. We also have zonal offices in Arusha, Mbeya, and Mwanza. On 1 April, we are going to open an office in Dodoma. ITM: What challenges and successes have you experienced, and what is your vision? Kamuzora: I was there before TIRA, during the days it was

Insurance Times | March-April 2016

Insurance ITM: The introduction of bancassurance has seen banks setting foot in the insurance business. How does TIRA regulate this in relation to other intermediaries in the insurance business? Kamuzora: Bancassurance takes many forms. One form is for the bank to operate as an agent, another form is for the bank to form a subsidiary of its company with its name, and another form is for the bank to save the products of an insurance company in its own name – like somebody starting a CRDB Motel Insurance Company, which would mean that behind the CRDB there is an insurance company. We want banks to open subsidiary insurance companies and sell insurance products in their own names, and that is when you can say that you have bancassurance at its best. That will help penetration of the insurance industry in this country. We are about to finalize arrangements with the Bank of Tanzania, which is the regulator of banks, to get banks to enter phase two and phase three so that bancassurance can now become an industry to be reckoned with.

“The recent MoU signed between the Tanzania Insurance Brokers Association (TIBA) and the Institute of Finance Management (IFM) goes a long way to train and empower our graduates” 22

ITM: Takaful insurance is very important to the development of insurance in Tanzania. When do you think this business will start? Kamuzora: For you to start a Takaful insurance, you need to have an appropriate legal and regulatory framework in place. I don’t buy the idea of someone coming in and saying, ‘We are selling Islamic insurance products,’ but there is no law. For insurance to sell as an Islamic product, it has to be backed by Sharia law. Now, how many of us are good scholars of Sharia? You need to have a Sharia auditor when you are running a Sharia business. The accounting system of Islamic finance must be according to international Islamic accounting standards, so you must have accountants who can prepare your financial statement using Sharia law. That is why we have to first work on the law before we can allow people to engage in Takaful business. This is being finalized and we should be able to have it in the next few months. ITM: The recent MoU signed between the Tanzania Insurance Brokers Association (TIBA) and the Institute of Finance Management (IFM) goes a long way to train and empower our graduates. What is the regulator doing to enhance this kind of manpower development? Kamuzora: The regulator has done and still does a lot in making sure that we have the appropriate manpower in the market. Ten years ago, we signed an MoU between this office and the University of Dar es Salaam (UDSM) to introduce a degree course in science. Every year, more than 25 students graduate with a bachelor’s degree in actuarial science. We also work with IFM to make sure that they conduct courses leading to an award of Certificate of Proficiency in Insurance, a basic requirement for anyone who wants

Insurance Times | March-April 2016

to do insurance agency business in this country. We also sit on various boards of IFM to make sure that it produces people with diploma as well as degree qualifications in insurance. All this is part of our efforts to make sure that people who are in the insurance business and those who want to come into this market are qualified. The MoU signed between brokers and IFM is a very welcome move. Brokers will be able to identify talented students and get them to work in their companies. ITM: How has TIRA benefited from local experts in insurance from IFM and UDSM? To what extent does TIRA utilize and engage them in various insurance projects? Kamuzora: TIRA does not create jobs in the sense that we tell people to come and work for us. We create jobs by licensing companies that then employ people. Our role is to make sure that the companies that are coming into the market are not briefcase companies; they are companies that are here to stay, grow, open branches and employ Tanzanians. The 30 insurance companies operating here all have branches in Dar es Salaam, Arusha, Zanzibar, Mbeya, Moshi, Mwanza and Dodoma. So, they have employed the products of IFM and the University of Dar es Salaam. ITM: There are a number of experts from other countries. Are they adding value to the industry? Kamuzora: Insurance is an international business. You cannot domesticate insurance, because a car will leave here and be driven across the border to Kenya, Uganda and back to Tanzania. The trucks that are carrying our cargo from the port of Dar es Salaam drive their way to Zambia, Malawi and Congo. International business works well when you allow foreigners to work in the country; you don’t look at somebody’s citizenship or

personality to employ him/her, you look at his capacity to deliver. In the aviation industry, there are pilots flying the Precision Air who are not Tanzanians, and that is a nice thing. It is the same in the hotel industry as well as banking. So, we cannot close doors for foreigners, but we can put limits for jobs that do not require foreigners. ITM: We have seen foreign investors storm the insurance industry in the country. What does the regulator do to protect the investors and promote locally-owned insurance companies? Kamuzora: The law that establishes the insurance industry in Tanzania has favoured Tanzanians in many ways. You cannot establish an insurance company or a broking firm in this country unless one-third of the shareholding is held by a Tanzanian. So, these companies, however big and wherever they may be coming from, cannot come and set up a shop here without signing off a third of the shareholding to Tanzanians. ITM: Tanzania has a very low portfolio on the life assurance business. Why? Kamuzora: Life insurance business, where it is selling well in any country, is because of the following features. The stability of the national currency. In countries that have been stable against fluctuation, life insurance sells well. Culture of the population. Life insurance can either sell as a saving or as an investment. Tanzanians have a poor culture of saving compared to people in India, Japan and Kenya. The mortgage industry is established. If the system of mortgage industry is well established, people will take insurance because the condition for you to be given a loan is that you need to insure your life until death. ITM: Value added tax (VAT) was imposed by the government on insurance services last year. What is your take on this? Kamuzora: It is good, because insurance will also contribute to the

economy of our country. We need this country to be rich. So, VAT is a vehicle for helping the government to collect as much as possible. Actually, one function of insurance is to collect and mobilize funds for investment by the government. The government will then invest in building roads, schools, and hospitals. Insurance is bought by people who have extra to spend; poor people do not buy insurance. People don’t buy insurance because it is cheap; people buy insurance because they believe in it. Insurance is about rearranging of priorities. In fact, the richest people are the ones who are not buying insurance. ITM: Insurance Times Magazine has been established to bring greater awareness of insurance services and give the insurance industry a voice. TIBA has shown its support for the magazine by adopting it as an official tool for information dissemination. As the only insurance publication in the region, what can we expect from TIRA? Kamuzora: I wish to see more magazines writing about insurance, because insurance education and awareness is lacking in this part of the world. So, I congratulate you for taking the initiative. I have, too, seen the need to create a platform where people who want to know more about insurance can get that information. But again, insurance is very tricky business. You have to be very careful when you write about insurance, because some people may mislead you with information. You can always check with my office for us to be able to validate the information you get. People need to know about insurance, and insurance always impacts all aspects of our lives. ITM: We have not seen any offenders published in the papers. Does this mean that all issues are resolved amicably with no recourse to courts of law? Kamuzora: We have many cases in the courts, and they are not reported in the papers and I don’t know why. There are many ways of dealing with insurance offenders. One way

is safe regulation: Those who are members of associations can have the association penalize them. They take measures and issue penalties. Those that we deal with, we also penalize them. We cancel their licences and give them warnings. There are those that we take to police, and they end up in court. Some get fined, others jailed. We can be giving you this information to publish.

“Safe regulation: Those who are members of associations can have the association penalize them.” ITM: Tanzania has only one reinsurer. Compared to other countries in the region, why is this so? Kamuzora: It is so because our reinsurer is a national insurer getting business by law. When the market was liberalized in 1997, we realized that we needed to build the reinsurance capacity, which we did not have. So, the government deliberately shut out reinsurers so as to establish its national capacity for some time. After it has built this capacity, it will allow other reinsurers to come into the market. However, they take business even if they don’t open offices; for instance, Tanzania Reinsurance does not take aviation risks because it does not have that capacity. So, all aviation policies are underwritten in London, where they are taken up by reinsurers based in London or elsewhere. We will undertake some studies to see if time has come to allow others who want to open up shop to do so.

Insurance Times | March-April 2016

Insurance

Morbid opportunities? UAP policy turns taboos upside down

By Addah Zammy

uneral insurance – also called burial final expense or pre-need insurance – refers to a group of products intended to pay for death arrangements. Many people use funeral insurance as a way to ensure that their own funerals are arranged and paid for in advance, so that they do not burden their families or dependants. It can also be used by parents to guarantee funeral funding for their children. Funeral insurance is not like any other insurance policies that are taken out because of a risk that may happen – for funeral insurance it is a matter of when it will happen. In other words, it’s not a case of what if you die but a case of when you will die. Taboo topicIn African cultures, it is a taboo to talk about death before it has occurred to you or another person. The modern society today is proud to have introduced the making of a will to signify a wish after death, meaning it is easier to say, ‘’When I die…’’ For 72-year-old Ojok Angelina, it is a taboo to anticipate someone’s death; as a result, she cannot encourage anyone to spend money on such a venture. She said that if a member of the family dies, it is the responsibility of the living relatives to organize a send-off according to cultural dictates. A funeral is a ceremony for honouring, respecting, sanctifying or remembering the life of a person who has died. Funeral customs comprise the complex sets of beliefs and practices used by different cultures to remember the dead, from internment itself to various monuments, prayers and rituals undertaken in their honour. Usually, customs vary widely across cultures, religious groups

Insurance Times | March-April 2016

and denominations. Common secular motivations for funerals include mourning the deceased, celebrating their life, and expressing support and sympathy to the bereaved. Additionally, funerals have religious aspects that are intended to help the soul of the deceased in the after-life, in accordance with specific belief systems. Ugandans are now beginning to experience a new era, whereby money for funerals does not have to come from relatives and friends. The “kiboo” – a handmade open basket that is moved around for mourners to donate money to facilitate funerals – may soon be a thing of the past. Planning the final goodbye takes time, consideration and thoughtfulness. For instance, what funeral events will best celebrate the spirit and story of the person concerned in a unique and appropriate manner? Or what will family members and guests learn or remember about the deceased?With the Sunset Plus scheme offered by UAP Insurance, the worries that come with planning the death of a loved one are made easier. The plan guarantees a lump-sum payment to cater for a dignified send off. Furthermore, since funerals are cashbased, Sunset Plus pays within 48 working hours, which can greatly facilitate the funeral events.Waiting periodThis seems to pose a major problem to most people with the intention to plan their own funerals. Death is either natural or accidental, meaning you can either die as a result of sickness or because you have been involved in an accident. UAP Uganda Business Developer Glanda Mugabi says that no natural death claim shall be payable within the waiting period. However, if death is accidental, funeral cash will be paid. She said that the waiting period is 90 days for individuals and 14 days for a group, provided there is proof and supporting documentation showing the cause of death to be accidental. The main benefit of this policy is that it does not require medical tests, which is a stage that most people fear when buying policies from insurance companies. It is also affordable, meaning that it is within the reach of the average Ugandan. The monthly premium per person is between Ush3,000 (90 US cents) and Ush5,000 ($1.5), which qualifies for a cash benefit of Ush3 million ($900) to Ush5 million ($1,500) at the time of death. It covers clients up to a maximum of 70 years of age.

Insurance Times | March-April 2016

Insurance

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STRENGTH

Insurance sector assets grow to a record $330m

SECURITY

By Staff Writer

he insurance sector in Tanzania has recorded substantial growth in terms of assets and premiums. A favourable financial environment led to growth in total assets, which is attributable to a rise in underwritten premium income and investment returns. According to the Financial Stability Report (FSR) for the six months ending September 2015, total insurance assets increased to Tsh692.9 billion ($330 million) compared with Tsh590.5 billion ($281.2 million) registered in the year before, an increase of 11.8 per cent. The general insurer’s retention rates were 57.9 per cent of total Gross Premium Written (GPW). The retention rates were consistent with the prudential retention ratio of between 30 per cent and 70 per cent of GPW. Exposure to liquidity risk declined on account of enhanced capital. The General and Life insurers’ liquidity ratios rose to 106.7 per cent and 57.4 per cent in June 2015, respectively, from 63.2 per cent and 43.5 per cent reported in March 2015. Both ratios were above the minimum prudential requirements of 95

per cent and 50 per cent, respectively. Insurance sector investment portfolio remained relatively diversified. The insurers’ investment assets comprised term deposits 51.6 per cent, real estate investments 17.4 per cent, shares 15.8 per cent, and government securities 12 per cent. Investments in related parties were 2.1 per cent, while other financial investments stood at 1.1 per cent. However, investment in real estate was slightly above the regulatory threshold. The insurance sector was adequately capitalized at the end of June 2015 as measured by the solvency ratio of both general insurance and life assurance. The general insurers’ ratio was 63 per cent, above the minimum prudential requirement of 25 per cent. Likewise, life insurers’ solvency ratio was 28.8 per cent compared to the minimum requirement of eight per cent. The Tanzania Insurance Regulatory Authority (TIRA) continues to apply supervisory tools, including additional capital injection, to enhance the sector’s ability to cushion itself against potential risks.

Insurance Times | March-April 2016

During the period under review, the level of risks for general insurance as measured by provision for actuarial liabilities to capital was low. The sector’s ability to withstand adverse deviations of actuarial liabilities was high, standing at 23.5 per cent at the end of June 2015 against the statutory limit of 250 per cent on account of capital enhancement during the year to June 2015. Capital enhancement is also reflected by general insurers’ decline in return on equity to 7.2 per cent at mid-2015 from 10 per cent during the corresponding period in 2014, despite increase in the rate of return on investment to 6.7 per cent from four per cent. The Global Financial Report was inaugurated in 2013. It aims at re-examining the state’s role in finance after the global financial crisis. It also provides an assessment of the global financial system and markets, and addresses emerging market financing in a global context. It focuses on current market conditions, highlighting systemic issues that could pose a risk to financial stability and sustained market access by emerging market borrowers.

Licences at risk as insurers fail to beat deadline on unclaimed financial assets

By Barack Otieno

majority of Kenyan insurance companies have failed to beat a deadline to surrender unclaimed financial assets, putting renewal of their annual business licences at risk. The Unclaimed Financial Assets Authority (UFAA) had issued an ultimatum requiring holders of unclaimed financial assets, including insurance companies, to surrender them to the authority by 1 November 2015. The failure to meet this deadline led to the insurance regulator and UFAA signing a memorandum of understanding that will see them form a joint audit team to scrutinize the accounts of all insurance companies. Kenya’s parliament passed The Unclaimed Financial Assets Act in 2011 to provide a legislative framework for dealing with unclaimed financial assets. The Act was assented to in 2015. Under the Act, UFAA was established as a corporate legal entity. It was formally launched and inaugurated in September 2015 as the continent’s first unclaimed financial assets regime to chart new frontiers based on homegrown solutions championing global best practice. The mandate of UFAA is to identify and receive unclaimed financial assets from holders of such assets on behalf of the government of Kenya, protect and return the assets to their rightful owners. Kenya’s insurance companies are be-

lieved to be holding millions of dollars in unclaimed financial assets accruing especially from mature life policies that are yet to be claimed. Other sources of unclaimed financial assets may arise from unpaid awards from accident victims, including personal injury claims and unpaid pension liabilities. UFAA has demanded a thorough audit of the insurers’ books before delving into the reasons for their non-compliance. The Insurance Regulatory Authority described compliance as a patriotic duty, emphasizing the need for Kenyans to obtain due payments – especially in matters such as children’s education policies so as to enable children benefit from money set aside for them by parents. The regulator added that maturity proceeds must be paid together with accrued interest to enhance benefit levels. Voluntary surrender of unclaimed financial assets has been a good practice regularly employed by many leading and buoyant Kenyan insurance companies long before implementation of the Act. The channel widely adopted by insurers to declare unclaimed financial assets has been publication of details of such assets in the daily print media to draw the attention of surviving beneficiaries. These declarations have been a welcome shot in the arm for the industry and a major boost to its battered image arising from negative public perception arising from delays or non-payment of claims. A voluntary declaration of unclaimed financial assets enhances a free and close mutual relationship between insurers and customers. Furthermore, the insuring public often cites vices such as lack of openness, including full disclosure by insurers on product specifications and operational procedures especially at the point of taking up a policy, as impediments to the uptake of insurance products. As at the time of expiry of the UFAA deadline for submission of unclaimed

Insurance Times | March-April 2016

Insurance Law

Thinking of engaging in reinsurance? Hereâ&#x20AC;&#x2122;s what the law says In Tanzania, no person or insurance company can carry out the reinsurance business if not fully registered with the Tanzania Insurance Regulatory Authority. By Deusedit S. Muhono

einsurance has been defined by the Tanzanian Insurance Act as the effecting of insurance business between insurers. In this case, two insurance companies come together and effect insurance business. Section 4 of the Act provides for such a definition. However, this is a legal definition that does not provide for full details and elements that pertain to reinsurance. The issue of Insurance Times Magazine for December 2015/January 2016 provided details of this. In Tanzania, no person or insurance company can carry out the reinsurance business if not fully

Insurance Times | March-April 2016

registered with the Tanzania Insurance Regulatory Authority. Section 21 of the Insurance Act provides for that position. Accordingly, it is an offence and against the law to conduct such business if not registered. This means that even if the company is a fully registered insurance company, it cannot carry out reinsurance undertakings or business if such business is not legally registered with the relevant authorities. Commissionerâ&#x20AC;&#x2122;s powers In terms of payment of premiums, the

Commissioner of Insurance may, in writing, set limits within which a registered insurer may accept insurances of all or any class by restricting the gross premium received by an insurer to a specified maximum in any one financial year. The commissioner may further restrict the gross premium less gross reinsurance payable by an insurer to a specified maximum. Therefore, the consent or views of the commissioner must be sought whenever anyone seeks to undertake reinsurance business. According to the Insurance Act, the carrying on of all arrangements for reinsurance and insurance business shall be subject to the control of the Commissioner. In the exercise of this control the commissioner may, in writing, prohibit a registered insurer from transacting any individual policy or all insurance or a class or classes where the amount of premium and commission to be paid or the manner in which the amount of premium and commission are to be ascertained are not specified in the contract of reinsurance, or in the opinion of the Commissioner, the retention limits are too low or too high. The commissioner may also do this where the arrangements for reinsurance in respect of which persons, property or interest are or are to be insured by the insurer in the course of carrying on insurance business are not favourable to the economy or the insurance industry or are not in the public interest. However, as a businessman in the insurance industry, there is always room to check with the commissioner and request for exemption to these requirements by advancing solid grounds that may, in the view of the commissioner, provide substantive grounds to grant an exemption. Always look for room to improve your business and profit. The Commissioner may, by notice published in the gazette, determine the minimum and maximum commission rates payable by insurers to other insurers, brokers or agents in respect of all or any class of insurance or reinsurance. Always seek for proper rates to avoid penalties and circumvention by the commissioner that may affect your business relationship. These rates are usually public to avoid unfair competition in the market. For third party rights and liabilities, it is important to note that â&#x20AC;&#x153;liabilities of third partiesâ&#x20AC;? shall not include any liability assumed by reason of a contract of reinsurance.

Mandatory reinsurance cessionsThe law under part vii provides for mandatory reinsurance cession with international insurance organizations. Every insurer shall be required to offer to place with the African Reinsurance Corporation (Africa Re), a minimum of 5 per cent of its reinsurance cessions, in accordance with Article 27 of the agreement that established Africa Re. It must also place a minimum of 10 per cent of its reinsurance cessions with the Preferential Trade Area Reinsurance Company (ZEP-RE), in accordance with Articles 20 and 21 of the agreement establishing ZEP-RE. However, the Commissioner may, by order published in the Gazette, vary the minimum reinsurance cessions specified thereunder. On top of that, any insurance or reinsurance institution is not prohibited from entering into a direct reinsurance arrangement with Africa Re and ZEPRE in respect of the whole or part of the risks undertaken by that institution, or from making any other arrangements which are mutually acceptable to AfricaRe or ZEP-RE. It an offence for any institution or company to fail to comply with these mandatory requirements. Long-term insurance An insurer transacting long-term business in Tanzania shall not enter

into a contract of reinsurance against any liability of its long-term business in Tanzania, otherwise than with a longterm insurer or reinsurer approved by the Commissioner. Every Tanzanian insurer shall reinsure a proportion of each policy of insurance issued or reinsured in Tanzania by insurers, in any proportion and manner specified in the Tanzania National Reinsurance Corporation (Establishment) Order, 2001 or in which every insurer shall place with the Corporation any proportion of its reinsurance business from Tanzania. The Tanzania Reinsurance Company Ltd (TAN-RE) is a regional reinsurance company providing a broad range of reinsurance products and services to clients in Africa, the Middle East and Asia. From its headquarters in the historical port city of Dar es Salaam, TAN-RE effectively opened its doors for the writing of all classes of reinsurance business with effect from 27 January 2004. The Company has been registered to transact reinsurance business in respect of all non-life insurance business, including marine and aviation, as well as all life assurance business, including pension. TAN-RE has experienced year-onyear growth and now serves more than 180 companies in 46 countries across Africa, the Middle East and Asia.

Insurance Times | March-April 2016

Insurance

Yes, insurance can ensure children complete their education One of the most impactful, valuable and worthwhile investments one can make is taking an education policy; should you ever become severely sick or disabled or even die, your child or children’s education is protected and they are assured of continuity.

By Addah Zamm

child’s education is more than just a short-term expense. It is, rather, a long-term commitment that can stretch over many years, sometimes exceeding 16 years should they choose to study further after high school. And as a parent, you should be planning for each year. Financing such an investment can be a daunting task, particularly when taking into account the cost of just one year’s education. Having a financing plan in

place isn’t just a nice thing to have –it is an absolute necessity. And that is why the culture of insuring a child’s education is crucial and should be taken up by many parents. When the year begins, all savings are diverted to school fees. A good financial plan through insurance can minimize all the worries that come with a child and education. For that, many insurance companies in Uganda have introduced products that include the education

Insurance Times | March-April 2016

package, including insurance for higher university-level education. Insurance Buying or joining insurance is the best saving method one can adopt because of its benefits to both the insured and the beneficiary. Insurance benefits encompass the facilities associated with buying of insurance. It is mainly an instrument used by consumers for hedging the future contingent risks

related to life, health and non-life issues, and hence insurance benefits help the policy holder or beneficiary in combating losses or hazards. However, there are two important benefits that buyers should consider so that insurance is enjoyed. One should choose a cover that is affordable depending on your choice so that payments do not go beyond your limits .The foremost insurance benefit in today’s world is the low insurance rate and premium one has to pay. While choosing an insurance policy, every customer looks at the rate first and then other associated benefits. The lesser the

insurance rate, the more affordable the insurance becomes. Thus, among all the insurance benefits, low insurance premium is the most coveted one. The easy accessibility of insurance is the next most coveted insurance benefit that customers look out for. The access to insurance companies and their policies have made them more lucrative to customers. These days, customers can compare and select their insurance coverage. “Varsity for sure” Today, the cost of education is increasing and this trend is likely to

continue in the coming years. The varsity for sure policy is a tailor-made university life endowment plan. It is never too late to prepare for anything: Even as you plan, anything can happen. That is why at an affordable fee, the National Insurance Corporation (NIC) is offering a unique university life cover that serves as a financial guarantee for your child’s education up to university in the unfortunate event of death or disability. The main objective of this plan is to provide future protection of the children’s university education, after a period during which premiums are paid by the parent or guardian. According to a staff member at NIC, this plan is an educational life insurance policy that will provide for payment of maturity benefit, whether the life assured is alive or not at that time. The maturity benefit shall be used to pay for tuition fees and the other costs at the university. It’s up to the policy holder/parent for that matter to choose the amount of the basic maturity benefit which should be adequate for the expected university tuition fees of the full course. And this cover can be bought by any parent or guardian between 18 and 65years of age. Death before maturityIf the premium payer or beneficiary dies before the policy matures, the policy continues to be in force; the maturity benefit will be payable at the maturity date or commencement of university education. However, if the child dies during the term of the policy, another child may be nominated as a beneficiary or premiums will be refundable. The cover has the following features, among others:The term selected may be 5, 10, 15 or 20 years and should coincide with the time of admission of the child to university. It allows a flexible schedule of premium payments (single premium, annually, bi-annually, quarterly or monthly). Due to the rising cost of education and in order to get value for money, it is recommended that the minimum sum assured should be Ush10 million ($2,985). There is no medical examination required and the benefit is payable to the institution or the life insured by annual instalments or per semester.

Insurance Times | March-April 2016

Bancassurance

Bancassurance fever: Jubilee, DTB break new ground

By Anne Kiruku

Jubilee insurance has teamed up with Diamond Trust Bank (DTB) to launch a life insurance product, bringing more competition and excitement into the bancassurance business. The new partnership is also expected to boost insurance uptake, which has been declining in Kenya. Poor insurance penetration and intense competition in the sector is leading to intense price undercutting among insurance players, a situation that has led to the efforts at diversification, mergers and partnerships “Bancassurance provides being witnessed in us with a platform to the insurance secinform the rising middle tor. Life insurance class in Kenya about penetration is below one per cent in life insurance. This DTB Kenya, lower than distribution channel the general insurhas provided Jubilee ance uptake, unlike with an effective mode in some countries of delivery, where we where life covers are dominant. send specially-trained The partnership financial advisors to between Jubilee Inmeet DTB customers surance and DTB is identified to us,” a classic example of the specialist referral model. The the Patrick Tumbo

Insurance Times | March-April 2016

bank will host jubilee insurance staff in its branches in a bid to drive enhanced uptake of the life insurance products among the bank’s customers. This is projected to increase Jubilee Insurance sales, thus growing the revenues of both partners. Kenya will now become the second country in Africa, after South Africa, to adopt the specialist model of bancasurance. The referral or specialist model differs from the current practice in bancassurance, which relies on bank staff to sell insurance products. “Banks offering individual insurance plans through their insurance agencies have had low to medium success with high customer drop-out rates. The referral model has therefore emerged as the more sustainable and viable choice, as has been witnessed in many countries across Asia, Europe and Latin America,” said DTB Chief executive Officer Nasim Devji. Speaking during the signing ceremony, Jubilee Insurance Chief Executive Officer Patrick Tumbo said bancassaurance had shown tremendous capability in enhancing life insurance uptake

in its first year of operation compared to the traditional method of distribution via agents. “Bancassurance provides us with a platform to inform the rising middle class in Kenya about life insurance. This DTB distribution channel has provided Jubilee with an effective mode of delivery, where we send specially-trained financial advisors to meet DTB customers identified to us,” he said. Tumbo also said that the referral model will allow Jubilee to tailor specific products to suit customer needs and financial strength, ensuring there are no drop-outs. According to DTB and Jubilee Insurance, the life insurance products will meet the needs of the bank’s account holders. Both Devji and Tumbo said the referral model was aimed at enhancing the penetration of life insurance among Kenyans. “We have different products for different needs like one saving for their child’s university would require a five year savings plan backed by a policy to that effect which is different from a 10 or 20 year education plans for funding secondary or primary to

secondary education respectively,” he said. “We shall look at an individual’s needs and refer them to Jubilee Insurance who are specialists in this area. Bank customers trust us and prefer to be served at a bank branch rather than from an insurance agent who moves from one door to another selling insurance policy,” she said. Mrs Devji added that they are willing to partner with more insurance companies with more products. “Ours is a business that seeks at the bottom-line-commission and the value our clients will get from the products offered”. Under the agreement, Jubilee will pay a commission to DTB for referred businesses over a three-year period. Both firms have agreed that they are free to contract other insurers and bankers as the agreement did not forbid them from doing similar business with others. Jubilee is currently doing bancassurance with six other commercial lenders including I&M Bank, KCB, Family Bank, Standard Chartered and Barclays.

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Insurance Times | March-April 2016

Bancassurance

New Bancassurance guidelines give life to Kenyaâ&#x20AC;&#x2122;s insurance industry

By Barack Otieno

Following liberalization of insurance distribution channels in Kenya, the regulator issued modalities to the insurance industry to streamline bancassurance operations in the country.

Insurance Times | March-April 2016

ancassurance is the distribution of insurance products through distribution channels of banks and microfinance institutions licensed by Central Bank. The period before 2014, when the liberalization was effected, witnessed an upsurge of pressure on the regulator involving lobbying

and counter-lobbying pitting licensed local banks and microfinance institutions on the one hand and insurance intermediaries on the other. While Kenyan banks saw an untapped potential for additional revenue generation in bancassurance, insurance intermediaries maintained studious suspicion on bancassurance as an encroachment on their core mandate. The intermediaries got ready support from foreign-registered banks operating in the country, who were hitherto locked out of distribution of insurance products by legislation and considered the playing field as tilted against them. In authorising full-fledged bancassurance operations in the country, the regulator sought to achieve three main objectives, namely, to deepen insurance uptake through cross-sales of insurance products to banking customers, to provide banking and insurance customers with a one-stop facility to transact and meet their banking and insurance needs, and finally to achieve financial integration. The country has over 20 million

earned from insurance products sold. To customers, bancassurance is a significant value addition since they get to enjoy the benefit of a common platform for ready and easy access to insurance and banking products and services under one roof. Through bancassurance, insurance companies benefit from the advantages of modern technological advances registered by the banking sector, especially in online configurations involving payment and receipt of customer orders. Compared to insurance companies, a majority of large banks have a countywide footprint involving extensive branch networks, facilitating maximum customer outreach initiatives desired for increased insurance penetration and product uptake. On integrity matters, banks enjoy a closer relationship with their customers than insurance companies. This close relationship is based on mutual trust and confidence, which are key drivers in buying insurance. Bancassurance is better entrenched in the more developed economies of Western Europe and South East Asia. In the US, it is estimated that up to 60

On integrity matters, banks enjoy a closer relationship with their customers than insurance companies. bank account holders compared to an estimated over 500,000 persons with any form of insurance cover, and hence bancassurance offered a good opportunity to sell insurance products to banking customers using a single platform. Bancassurance as a business practice involves distribution of insurance products through banking channels for the equitable and fair benefit of all stakeholders. Through bancassurance, insurance companies gain access to a wider additional customer segment, including generation of additional premiums and market expansion. Banks, on the other hand, generate additional revenue through commissions

per cent of life assurance products are distributed through bancassurance, compared to 40 per cent and 30 per cent respectively in France and Spain. In South East Asia, bancassurance has a significant foothold in India, Malaysia, Singapore and Indonesia. The nature of the British financial regulatory system, which requires exclusive and unintegrated scrutiny and reporting systems for each and every financial sector, impedes optimum growth and expansion prospects for bancassurance in the UK. The three main disadvantages of bancassurance are low profitability margins from fixed commission rates, bankers’ perspective of considering the distribution of insurance products

as outside their core mandate, and the lack of a seamless mutual partnership between insurers and banks. Bancassurance guidelines issued by the Kenyan regulator recommend two operational models, namely, the integrated bancassurance model and specialist bancassurance model. A “specialist bancassurance model” means a bancassurance model involving the distribution of insurance products through employees or agents of an insurance company. Banks partnering with insurance companies are required to identify their employees who will provide insurance companies with sales leads on customers with potentiality to buy insurance. The bank is required to provide the insurance partner with a data bank of their customers whose insurance needs have been assessed and found to be acceptable. Under the “integrated bancassurance model,” insurance products are to be distributed through the institution’s existing branches and the products are sold to customers through its employees. The institution may be a wholly-owned subsidiary dedicated to distribution of insurance products. Applicants can choose between specialist and integrated models to conduct bancassurance business – by establishing a bancassurance agency as a subsidiary wholly owned by the bank or microfinance institution. The agency is required to operate as a separate corporate entity licensed under the Insurance Act and any breaches attract regulatory sanctions. The agency’s technical staff and partnership arrangements, including product mix, are to be approved by the regulator. The agency is also required to submit annual returns to guarantee renewal of its trading licence. A level playing field now exists for all bancassurance stakeholders. A majority Kenyan banks moved in concert to form subsidiary insurance agencies to leverage on the opportunity created by the guidelines. The impact of this development is likely to translate into an increase in the country’s insurance penetration and uptake rate in the next three-year period.

Insurance Times | March-April 2016

Bancassurance

At DCB, integrating insurance with banking services is a game-changer

By a Special Correspondent

CB Commercial Bank (DCB) has now integrated insurance agency services into its banking products. The intention is to increase the bank’s income, turning it into a one-stop centre and empowering people to access insurance services in its eight branches without unnecessary hurdles. The DCB bancassurance project started operations in November 2015. It focuses on non-life and life insurance services. The bank’s Marketing and Product Development Manager Boyd Mwaisame said that it is now moving fast to market 12 insurance products including fire, motor, life, money, all risks in business, and public liability insurance services, says. According to Mwaisame, other insurance products and services offered include workmen’s compensation, burglary insurance, transit, domestic package, electronic insurance and marine

insurance. “We want to enable our customers to access insurance services easily. We want to expand the scope of banking services. Even non-bank customers will also access insurance services at low cost,” said Mwaisame. The major partners of DCB Commercial Bank in this line of business are Reliance Insurance and Slam Insurance. These partners offer general insurance services and life insurance as well. “We offer insurance services for all, and in all our branches,” said Mwaisame. He advised customers to visit any DCB branch to cover their properties with DCB insurance services, and promised to serve them courteously and promptly. The mission of DCB is to contribute to the economic and social development of Tanzania for individual, micro, small and medium enterprises, and corporate

Insurance Times | March-April 2016

organizations as well, by developing specialized financial products and services. The bank has a long-term vision of further expansion of customer deposits and its working capital through rapid expansion of insurance business. In this financial year, DCB is also set to establish a new branch at its head office in Dar es Salaam so as to further expand business operations. This will be done in tandem with integration of insurance products. DCB was established in 2002 as a community bank with an initial capital of Tsh1.12 billion ($512,575). According to a statement released recently by the bank’s Managing Director Edmund Mkwawa, as at December 31st 2015, the bank had eight branches and 137 agents in Dar es Salaam and Coast Regions, with total deposits of Tsh121.05 billion ($55.4 million).

Insurance that Covers it all. DCB Commercial Bank now offers Insurance services to our existing customers and the general public. To insure, Please visit our branches today HEAD OFFICE DCB Commercial Bank Plc, DCB House | Magomeni Mwembechai, Dar es Salaam, Tanzania Tel: +255-22-2172201 | Mob : +255 0788 278 768I n| Email s u r a n: cinfo@dcb.co.tz e T i m e s | M| awww.dcb.co.tz rch-April 2016

Islamic Financial Insurance Laws services

Interest sucks! Sakk will have nothing to do with it

THIS STORY IS SPONSORED BY

By Khalfan Abdallah Salim

The word Sakk refers to a single bond and its plural is Sukuk, which is a famous word in the world of Islamic finance.

ukuk are Islamic bonds that are structured in a way to generate returns to investors without any transaction involving riba (usury). By definition, Sukuk are shares in the ownership of tangible assets, with reference to a particular project or an investment activity. Conventional bonds require the investor to pay the bond holder the amount owed, along with interest, on a specified date. In the case of Sukuk, the element of debt is non-existent, and

bond holders share the beneficial ownership of the asset or the project that the bonds represent. Due to this, Sukuk holders are entitled to the revenues generated by the sukuk assets, and sale of sukuk is necessarily the sale of a share in the ownership of the asset. Sukuk are generally issued to raise long-term finance for a particular project. They have become widespread and have reached an investment of over $1.34 trillion, according to the Global Islamic Finance Report 2012. Contd on Page 39 >>

Insurance Times | March-April 2016

A nod from the law: Uganda is ripe for Sharia’h, agency banking

By Staff Writer

he public and financial sector welcomed the recent Cabinet approval of the Financial Institutions (Amendment) Bill. The Bill was tabled before Parliament and paved way for the introduction of Islamic and agency banking as well as bancasurance in Uganda. Also included in the reforms was the creation of a fully-fledged fund to compensate customers when a bank is closed. This will protect the savings of Ugandans and will ensure compensation higher than the guaranteed Ush3 million ($895) if a bank closes. The fund will be able to invest the money meant to protect customers of banks and micro-finance institutions. The “protected deposit” shall be adjusted regularly by the finance minister, according to the Bill gazette on 31 July last year.

The Bill will provide special access to information on loan borrowers held by the Credit Reference Bureau by other accredited credit providers and service providers. This will make it harder for defaulters to borrow from more than one financial institution and ultimately decrease the cost of borrowing for people that honestly borrow and repay on time. The Bill also restricts mortgage-based banks like Housing Finance Bank to devote at least 25 per cent of their entire loan book to the real estate industry. It further restricts unsecured lending to bank employees for more than six months, and makes important changes to issues of ownership and control.Jim Mugunga, the finance ministry publicist, said the amendments in the Bill are intended to give effect to government policy of bringing finan-

>> from Page 38 A few years ago, there was a controversy on whether all the sukuk in the Islamic Financial market were Islamic. Mufti Muhammad Taqi Usmani, President of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), Bahrain, said in 2008 that over 80 per cent of the sukuk that were being traded were un-Islamic for the fact that they were being considered for investment in currency, giving a way to bring in the concept of time value of money in the investments – which is invalid in Islamic finance. In addition, there was another reason: many sukuk were traded with a promise to repurchase on a future date at the face value of the bond. Such a transaction is similar to the conventional financial product, futures, which is unIslamic due to the existence of the guaranteed return, regardless of profit or loss. For an investment product to meet Islamic financial standards, the owners should share the risk and the profit under all circumstances. The AAOIFI has suggested that it will be applying stricter rules for approving sukuk issuance for companies. These rules include conditions that suggest that sukuk must represent ownership shares in assets or commercial or industrial enterprises that would bring revenues or profits; payment to the sukuk holders should be a share of the net profits generated; and the value payable to the sukuk holder on maturity should be the current market value of the asset or project and not the value at the time of investment. Sukuk can either take the form of Murabahah, Musharakah, Ijarah (asset), Istithna (project) or Istithmar (onvestment). This will form our topic for the next issue.

Contd on Page 40>> Insurance Times | March-April 2016

Islamic Financial services

>> from Page 39 cial services closer to the people and to achieve financial inclusion for all Ugandans at less cost. He noted that due to the passage of time, some aspects of the Financial Institutions Act, 2004 have become outdated due to technological developments, international obligations, and globalization. He added that the amendments will enable the financial sector to create innovative products that are less costly and more consumer-driven. Mugunga noted that when passed into law, the amendments will propel Uganda’s financial sector on a basis fit for the 21st century. “Sharia banking is recognized internationally and is here to stay. We cannot keep away from it. This will enable the Muslim community to play a more active role in the development of the country. It will also enable Uganda to tap into resources of international organizations like the Islamic Development Bank, where the country is a member,” Mugunga said. Agent banking When the Bill is enacted into law, it will be possible for banks to have a network of agents similar to what the mobile money system currently operates. It will also be possible for banks to sell insurance products. The Bill will empow-

er the Bank of Uganda, in consultation with the finance minister, to set regulations for agents and agent banking. The agents will not necessarily have to be within the banking system. Reacting to the approval of the Bill, Birbal Singh Dhaka, the deputy president of the Uganda Bankers Association and CEO of Bank of Baroda, said: “This Bill will certainly be good for the industry. Islamic banking has been pending for too long.” Bancasurance The proposed new law will allow commercial banks to sell their own insurance products or to sell products of insurance companies. However, the commercial banks will have to seek written authorization from the Bank of Uganda. After banks get the authorization, they then have to follow guidelines set by the Insurance Regulatory Authority (IRA). The introduction of bancasurance is one of the measures the insurance sector is banking on to grow penetration from 0.85 per cent to 2.1 per cent in five years. Insurance penetration in Uganda lags behind the rest of the region. Tanzania’s insurance penetration stands at 2.3 per cent, Rwanda 1 per cent, and Kenya leads at 3.8 per cent.

Insurance Times | March-April 2016

Ibrahim Lubega, the Insurance Regulatory Authority Chief Executive Officer, said the enactment of the law will boost insurance penetration in the country through bancasurance and Islamic insurance. “Islamic banking goes handin-hand with Islamic insurance, which will enable investment in the insurance industry to boost our figures.” Deposit Protection Fund If the Bill becomes law, the Deposit Protection Fund – currently within the Central Bank – will be transformed into a corporate body with perpetual succession. The fund will become an insurance scheme for customers of commercial banks and microfinance institutions. The fund will pay customers of closed banks or micro finance institutions within 90 days of the closure of an institution. The minimum contribution to the fund shall be 0.2 per cent of a bank’s deposits. For instance, if Stanbic Bank has deposits worth Ush2 trillion ($597 million), it will be required to pay Ush4 billion ($1.2 million) to the fund. A financial institution whose overall financial performance is unsatisfactory after a quarterly report shall be asked to contribute up to 0.2 per cent extra, or double the minimum contribution, to the fund. The fund will collect contributions, and receive grants, fines of 0.5 per

cent for unpaid contributions, and incomes from investments to finance its operations. Change of Bank Ownership In case a financial institution intends to transfer shares, the Bill seeks to restrict the registrar of companies from allotting shares of the financial institution without the written consent of the Bank of Uganda. The Bill also authorizes the Bank of Uganda – in consultation with the finance minister – to alter minimum capital requirements for financial institutions from time to time and to require institutions to create capital buffers. Furthermore, the Bill seeks to restrict control of financial institutions by relatives to 49 per cent as a corporate governance measure to improve the entire financial system. Mortgage Banks In order to promote the real estate sector, the Bill instructs mortgage banks to dedicate 25 per cent of all loans for acquisition, construction, enlargement, repair, improvement and maintenance of real estate. Henry Richard Kimera, the chief executive of consumer education trust

(consent) welcomed the developments and said the Bill will protect consumers. “I like that relatives have been stopped from holding more than 49 per cent ownership of banks since they do not own the deposits. This will ensure depositors are taken into account when decisions are taken. Overall, the Bill ensures more transparency and I support this form of consumer protection,” Kimera said. Islamic Banking Islamic finance was started by Egyptian economist Dr Ahmed Al Najjarin. It consists of micro-finance, Takaful (insurance), issuance of Sukuk (Sharia’h-compliant bonds), and Islamic banking. Islamic or Sharia’h banks share profits and losses with depositors. They avoid interest ratebased commitments and do not finance activities prohibited under Islamic law such as gambling and alcoholic beverages. Prof Abdullatif Essajje, a Kenya-based finance consultant, pointed out during a recent conference at the Commonwealth Resort, Munyonyo, that although the Muslim population is the primary market of Islamic banking, the product is capable of appealing to

non-Muslims as well. He noted that there are only five Islamic Commercial Banks (ICBs) serving a population of 165 million people, of whom over 52 million are Muslims, in Djibouti, Eritrea, Ethiopia, Mozambique, Somalia and Zambia. He added that Botswana, Kenya, Gambia, Guinea, Liberia, Niger, Nigeria, South Africa, Mauritius, Senegal and Tanzania also have Islamic banking. Essajje noted that the assets of ICBs were approximately $1.8 trillion and will be expected to exceed $4 trillion by 2020 due to increasing awareness, confidence in Islamic financial institutions, and regulatory and political support. “Although Islamic finance in East Africa is at a nascent stage, its potential arises from an increasing number of middle-class families, size and expansion of its Muslim population, mega infrastructure projects, and mineral and oil finds,” he said. The Bill authorizes the Bank of Uganda to license commercial banks to carry out Islamic banking. Licensed commercial banks will then be able to operate an “Islamic window” and inaugurate a Sharia’h Advisory Board.

Insurance Times | March-April 2016

Islamic Financial services

From Cairo to Cape Town, Takaful is taking Africa by storm

When we think of Takaful, Islamic insurance, we think of the Arab world or Malaysia. In reality, though, Takaful started in Africa in the late 1970s, in Sudan, writes Odierno, Hassan Scott.

akaful started from the desire of Islamic banks, very young at that time, to obtain insurance coverage for risks. Their shariah (religious) councils forbade conventional insurance, thus Takaful was borne. The original Takaful operators (companies) generally considered profit secondary to obtaining coverage for their Islamic banking sister companies. This reflected in the model used in Sudan. Outside of Africa, in Saudi Arabia a cooperative (mutual) approach was

promoted. In Malaysia, although the first Takaful operator also had an Islamic bank as a sister company, profits took on a much more prominent role. Today, Takaful is a hot topic in Africa. In Tanzania, Takaful guidelines are being launched, which is likely to ignite the demand for Takaful in the country. In Kenya, there are also Takaful guidelines launched recently â&#x20AC;&#x201C; with a corresponding interest in launching Takaful. Takaful Insurance Africa, started in Kenya, has since expanded into Somaliland and has

Insurance Times | March-April 2016

expressed an interest in expanding to a number of other countries in the region. Morocco has new Takaful guidelines and Egypt has significant Takaful business. Takaful also exists in such countries as South Africa, Nigeria and Ghana. The countries in colour either have Takaful or Takaful guidelines, or have companies who have publicly expressed interest in setting up Takaful. Basics of Takaful

Takaful ensures the operational model and contracts between all parties follow shariah law. The key aspects are: Riba, interest bearing investments, must be avoided Investments must avoid haram (unacceptable) industries such as casinos and breweries Maisir, gambling, must not be present in contracts Gharar, uncertainty, must not be present in contracts Avoiding riba presents challenges in markets where Islamic banking is not advanced. Malaysia is one of the few markets where there are sufficient asset classes to actively manage assets and liabilities through asset strategies. In other markets, management will need to do so through the products sold and the guarantees (explicit or implicit) given. Gharar presents the greatest challenge in Takaful, as conventional insurance is built upon gharar. A policyholder pays a premium and in return receives coverage. The insured event may or may not occur, which is pure uncertainty. In Takaful, participants jointly donate to a risk fund which pays out benefits. In this way, the participants are jointly covering each other in the spirit of mutuality. There are two main operational models in Takaful: Mudharabah and Wakala (and a combination of both). Mudharabah roughly means profit sharing, whereas Wakala means agency. In a Takaful model, the role of the participants (policyholders) and the operator is clearly segregated. For instance, in most models there is a separate operators fund, risk fund and savings fund, with expenses being paid from the operators fund and benefits paid from the risk fund. In a Wakala model, the operator charges fees for work performed. These fees are paid into the operators fund to cover costs as well as profits. In a Mudharabah model, the operator receives a share of investment profit and/ or underwriting surplus, which is used to cover expenses and profit. There are also models which combine both, i.e. Wakala with Mudharaba, on the investment profit. More detailed illustrations of the common models in use will be shown in a future article. For the actuary, the challenge is combining shariah requirements (which vary by country) with ensuring shareholders receive a fair return

on capital and the risk profile of the operations is acceptable and understood by the shareholders and participants. The operator will appoint a shariah council consisting generally of three to five scholars and it is the role of the actuary to learn what models and structures are acceptable from them and to work with management to determine which of the acceptable structures is optimal from a financial and risk management point of view.

our operations comply with Islamic principles. In the Middle East, especially, there is a misconception that Takaful should be cheaper than conventional insurance. This is emphatically not true as the underlying events or risks being covered do not change when covered under Takaful. Having said that, it is hoped that anti-selection and fraud would be lower in Takaful, but even this is not a given. A Takaful operator thus must have the same focus on technical operations as with conventional insurance.

Misconceptions about Takaful One misconception in Takaful is that Takaful is purely for social good and not Education for making profit. In reality, it is possible Several years back, the CEO of for shareholders to earn a decent profit. Takaful Insurance Africa explained The key will be to attain a critical size, some of the challenges of educating nonsuch that the fees being charged under Muslims in particular on shariah law. He Wakalah and the level of profit sharing humorously pointed to instances where in Mudharabah can cover expenses potential participants asked should they and provide for profit. Making profit is cheat the company, whether the operator acceptable in Islam, but with transparency will cut off their left hand or the right! and in accordance with Islamic principles. The reality is that by taking Takaful, the Another misconception is that Takaful participant is taking insurance which is only for Muslims. The reality is that follows Islamic principles, not accepting Takaful is simply a form of insurance shariah as the law of the land â&#x20AC;&#x201C; an honest which follows Islamic principles. The concern in some markets. principles of fairness, transparency and Takaful has its roots in Africa. sharing of profits can and does attract The Islamic principles of fairness, both Muslims and non-Muslims. transparency and sharing of profits In Malaysia, there are Takaful operators resonate strongly in many African where the majority of participants are markets. With regulations steadily non-Muslim! In this regard, it is vital appearing throughout Africa, Takaful that conventional insurance companies is set to take off. To be truly successful, that want to start up sister Takaful companies segment their markets between Takaful and conventional insurance, ensure sufficient There are two main operational products undertake differentiation models in Takaful: Mudharabah and or ensure the return on capital Wakala (and a combination of both). is consistent in the pricing of the two operations. The risk of Takaful cannibalizing conventional insurance sales is real and is a prime concern with business planning and strategy. there must be a merging of shariah In some markets, there is a concepts and technical concepts, each misconception that Takaful is simply having their role in ensuring the success a name change and that conventional of the company. The business plan must principles and operations can simply be clear in its segmenting of business and continue as they are. The reality is that product design structure as well as risk even if contributions (premiums) in management. In a future article, we will Takaful and conventional insurance are explore more deeply the models currently equal, the risks could be very different. in use and innovating products which This could greatly affect shareholder can be developed much more easily in profits under adverse conditions. Whereas Takaful, such as microtakaful. in conventional insurance our actions are held accountable by the board of directors The author can be reached at hassan. and the regulator, in Takaful our actions odierno@actuarialpartners.com are also accountable to Allah (swt) as others are depending on us to ensure

Insurance Times | March-April 2016

Insurance Law

Why are Kenyans avoiding banks? New study could reveal the answer “The consultants were selected after an international tender on the planned survey that is also supported by the Financial Sector Deepening Trust,” Wang’ombe Kariuki.

By Anne Kiruku

he banking sector in Kenya is experiencing a decline in the number of people seeking its services, and a study commissioned by the Competition Authority of Kenya now seeks to find out why. The study, which is expected to take six months, is being conducted by Macmillan Keck Attorneys & Solicitors in collaboration with Academia Economics. It is a problem the insurance sector knows only too well, with an insurance uptake that currently stands at a paltry 3.1 per cent of the gross domestic product (GDP). This low insurance penetration could be blamed on various factors, including a poor savings culture, low levels of disposable income, and a negative perception towards insurance. To address these challenges, the Insurance Regulatory Authority (IRA), with the support of key stakeholders, has initiated aggressive consumer education and awareness campaigns across Kenya. The campaigns are aimed at increasing public awareness on the need for and benefits of insurance.

Now, the study of the banking sector is aimed at authenticating a report provided by digital credit data providers to reference bureaus. In particular, the study will seek to find out whether service providers deliberately release information on bad borrowers while concealing information on good borrowers to their advantage. “The consultants were selected after an international tender on the planned survey that is also supported by the Financial Sector Deepening Trust,” said Competition Authority Director General Wang’ombe Kariuki. In a notice published in local media, the authority said the study would seek to establish whether consumers have been denied information on their mobile financial activities that could enable them get loans on favourable terms. “It will assess if there exists restrictions on customers’ use of their own digital transactional data and provision of the same to third parties for commercial use,” said the notice. “We want to explore and

Insurance Times | March-April 2016

establish if there are any barriers to bank customers switching providers, if customers are aware of any alternatives, the ability to access information on switching account closure practices, and any behavioural biases that hinder customers from switching,” the notice further said. The study will in addition seek to establish how identified barriers impact on market development and customer choice. It will also seek to know how existing barriers create an uneven playing field. Kenya’s fast-changing cashless regime has attracted new digital lenders that are not regulated by the Central Bank of Kenya as they are not deposit-taking institutions. It is these lenders that provide collateral-free loans after scrutinising a prospective loanee’s mobile money account and using it to determine a borrowers’ creditworthiness. The authority will also look into banking practices that make it impossible for clients to switch from one institution to another with ease as well as establish why customers make the shift.

Insurance Times | March-April 2016

Insurance

Assist women, young babies to access healthcare, expert urges

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By Jesca Mhagama

resident John Magufuli’s government has been called on to implement the Health Care Financing Strategy to enable most vulnerable groups, including women and children under five years, to access health insurance. Speaking in Dar es Salaam during a Monthly Breakfast Forum on “Visioning Access to Health Insurance in Tanzania: Opportunities and Challenges,” Nina Siegert, a health consultant, said that women and children under five should be enabled to have health insurance to reduce health risks. Siegert said the strategy will also work to cover the poor and provide financial health protection to meet their health needs. Meanwhile, Dereck Chitama from the School of Public Health and Social Science of the Muhim-

bili University of Health and Allied Sciences (MUHAS), has said that only 30 per cent of the population was covered by health insurance. The Director of Marketing and Research at the National Health Insurance Fund (NHIF), Rehani Athumani, said there was a challenge for low-income members when it came to affording the Tsh76,800 yearly health insurance contribution. Athumani, who was presenting a paper titled, “Facilitating community to access health care services through health insurance,” also pointed out that a challenge arose out of the fact that health schemes focused on groups, regardless of each person’s income, leaving some individual members out of the system. “This system lacks consideration because each family member or dependant pays the same amount, unlike employee who pay by their employers and include their dependants,” he said. Athumani also said there was a need for the NHIF to establish a mechanism to cover individual members in the community, children, secondary and vocational

Insurance Times | March-April 2016

We will continue to improve the Community Health Fund (CHF) from a transitional period to universal health coverage to cover 50 per cent of the total population by 2050,” Rehani Athumani

training students. He said plans were underway to link NHIF with relevant government systems, including revenue authorities, to determine the contribution and number of members in a particular community. “We will continue to improve the Community Health Fund (CHF) from a transitional period to universal health coverage to cover 50 per cent of the total population by 2050,” he said. The Health Care Financing Strategy provides a framework for developing and advancing health financing as well as recognizing the importance of bringing adequate resources to the health sector.

Insurance Times | March-April 2016

Finance, economy and business

Barclays rattles customers over exit plans as local bosses downplay fears By Anne Kiruku

arclays Bank of Kenya Chief Executive Officer Jeremy Awori has moved with speed to quieten fears and reassure customers following reports of a planned exit from Africa by its parent company, Barclays PLC. The lender has reassured clients that it is here for the long haul and customers should stay put because their accounts are safe. This was done to avoid a possible run on the bank by depositors. “Your accounts are and continue to be safe and are not in any way impacted by these speculations. I assure you that your money is safe with us and you should not be concerned about the operation of your account,” said Mr Awori. The anxiety follows a report by the Financial Times that after a review of the African business, the bank’s board had decided in principle that it made strategic sense to get out of the continent. The planned exit is not a shocker, according to analysts. The contribution of the African business to the overall group’s profit has been hit in recent years by factors such as, “Africa reputational risk.” On the board in South Africa, for example, the bank carried all the risk while holding a minority position. African market returns to the overall bank return on equity of 9.8 per cent is significantly below the bank’s target. This must have triggered the decision to quit Africa after a century of operations. The planned exit move has sent shockwaves in the industry, with bank CEOs saying the news was earth-shaking as the Barclays brand in Africa had outlived generations. Barclays Kenya is celebrating 100 years of existence. Barclays Africa Group Ltd (BAGL), which includes the South African branch network, Absa, is one of

the largest banks on the continent. Absa has 45,000 employees and 1,267 branches across 12 countries – including Kenya, Ghana, Tanzania, Mozambique and Uganda. Since 2008, the bank has been battered by a succession of problems. Under four different bosses in four years, it has repeatedly hit the rocks with regulators. Analysts expect a loss in the fourth quarter; its share price has sunk 40 per cent within months. According to the Financial Times, the board has delegated authority to a subcommittee to examine the practicalities of how and when to sell Barclays Africa, one of its four main lines of business. By delegating authority, it avoided having to disclose the decision immediately. The decision to pull out of Africa is meant to reinforce Chief Executive Jes Staley’s strategy of refocusing Barclays on its core British and American markets. According to financial analysts, one of the benefits of selling out of Africa is that it could address worries about the bank’s capital. Analysts at Jefferies estimate that a sale could add as much as 0.8 percentage points to Barclays’ core

Insurance Times | March-April 2016

capital ratio — taking it much closer to its 12 per cent target. Since the global financial crisis of 2008, the bank has been battered by a succession of problems. Under four different bosses in four years, the bank has repeatedly hit the rocks with regulators. Analysts expect a loss in the fourth quarter and its share price has sunk 40 per cent in months. The bank released a statement mid last month confirming that it will soon exit its regional operations in Nairobi. “Barclays Africa Group Ltd can confirm that it will close down its regional operations and technology management office in Nairobi, Kenya by 31 March. Our African operations will continue to be supported by Pan-African Regional Centre based in South Africa,” the statement said. Though Barclays Kenya has announced several major investment decisions to stay afloat, such as opening a trading arm, ramping up its businesses, and redoubling its focus on SMEs, women, youth and innovation to cement its foothold in the local market, it is now a wait-and-see situation.

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Insurance Times | March-April 2016

Infrastructure development

Tanzania looks to Japan for help in improving infrastructure By Jovina Bujulu

A one-day event in Dar es Salaam to share and exchange experiences in quality infrastructure development has provided Tanzanian companies with expertise in improving trade through productivity.

he conference titled, â&#x20AC;&#x153;Tanzania-Japan Public-Private Quality Infrastructure,â&#x20AC;? was organized by the two governments and brought together government officials and delegates from representative companies from both countries. The participants shared and exchanged information on technology and networked among themselves. Visiting delegates included Japanese contractors, consultants, business, and trading companies. In recent years, Tanzania and Japan have worked closely to strengthen cooperation and improve their socio-economic ties. Tanzania Prime Minister Prof Kassim Majaliwa said that Japan was assisting Tanzania to develop its infrastructure and achieve sustainable economic growth. Tanzania is a gateway for six land-

Tanzania Prime Minister Prof Kassim Majaliwa with Japanese Deputy Minister for Lands, Infrastructure, Transport and Tourism Takatoshi Nishiwaki

locked countries and this is why it is focused on improving its roads, railways, airways, waterways, pipelines, and information communication technology (ICT) networks, all of which will support local and regional economic growth, Majaliwa said. To achieve this goal, the conference gave priority to business-matching meetings among delegates from both countries. This interaction will help in the promotion of quality transport infrastructure that is key for the agricultural, trade, and energy and minerals sectors. The meetings are also expected to boost Japanese private foreign direct investment (FDI) inflows to contribute to road construction and transport infrastructure, and to also support human development by job creation.

Insurance Times | March-April 2016

According to the Embassy of Japan in Tanzania, the number of Japanese companies interested in developing business ties in the East African country has been steadily growing in recent years. This has led to the creation of the Committee on Commerce and Industry of the Japanese Society of Tanzania (CCIJT) in 2011. As of 2015, CCIJT had 13 companies holding full membership and 13 others with associate status. Japan is also one of Tanzaniaâ&#x20AC;&#x2122;s main donors, ranking third with $338.43 million in 2013, behind the US with $734.11 million and the World Bank (WB) with $706.83 million in the same period, according to the latest statistics from the Organization for Economic Cooperation and Development (OECD).

Insurance Times | March-April 2016

Finance, economy and business

We want 80pc of Tanzanians to enjoy banking services by 2017 â&#x20AC;&#x201C; BoT By Staff Writer

he Bank of Tanzania (BoT) has set a new financial inclusion target to have 80 per cent of the countryâ&#x20AC;&#x2122;s adult population using a financial access point by 2017. The new target was set after the country exceeded the previous target of 50 per cent by 2016 under the National Financial Inclusion Framework (NFIF 2014/2017), with 55 per cent financial inclusion achieved in 2014. According to NFIF, the goal was achieved thanks to mobile telephone technology. With more than 35 million subscribers, this has extended the adult populationâ&#x20AC;&#x2122;s financial inclusion to more than 50 per cent, with 16 million people using mobile money accounts. In addition, BoT also set targets for the current 2015/16 fiscal year, in which the aim is to have 70 per cent of the population living within five kilometres of a financial access point. This will be achieved by enhancing access and implementing access channels such as agent banking outlets, further mobile financial services, pointof-sales (POS), and automated teller machines (ATMs). The central bank knew that by allowing the telecom sector to conduct mobile money payment services, it would create a good platform to improve financial services. Therefore, said BoT Governor Prof. Benno Ndulu, the authorities concerned decided to adopt a test-and-learn position that allowed mobile network operators to develop new services and review the risks. This was considered preferable to establishing constraining regulations. This approach allows the BoT to test

The Bank of Tanzania head office in Dar es Salaam

new mobile payment services in the market, observe the kind of risks related with them, and regulate to improve bank services. It also helps them to expand their reach using mobile platforms, Prof. Ndulu said. The partnership between mobile network operators and financial institutions has helped Tanzania to position itself among the leaders in the usage and access to affordable financial services in the world, ranking 12th out of 21 developing countries in the world. This is according to the last Brookings Financial and Digital Inclusion Project (FDIP). According to the World Bank, Tanzania is second in the use of mobile money accounts in Sub-Saharan Africa (SSA), with approximately 47 per cent of its adult population on board. It beat Uganda, with which it recently shared the second position. Kenya tops the list with a rate above 58 per cent against an average of 12 per cent in SSA and a mere 2 per cent globally.

Insurance Times | March-April 2016

Tanzania is second in the use of mobile money accounts in Sub-Saharan Africa (SSA), World Bank

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Insurance Times | March-April 2016

Mining set to contribute 10pc of Tanzania GDP by 2025

he Tanzanian mining sector is responsible for approximately 2.3 per cent of the overall GDP, a figure that is expected to grow to 10 per cent in the coming years. This projection is contained in the Development Vision 2025 plan. Through the exportation of non-traditional materials, the mining sector has become one of the leading sources of foreign exchange in Tanzania. Employment opportunities in the sector have also been increasing. There is also potential for further discoveries and development of mineral resources – particularly with regard to gold, diamonds, base metals, ferrous minerals as well as a variety of gemstones, including the rare tanzanite gemstone. Tanzania’s mineral production capacity has mostly relied on the exploration and discovery of gold and diamonds. For several decades, Tanzania has been a significant producer of diamonds

in the region, with over 300 kimberlites (igneous rocks) confirmed in the country; 20 per cent of these kimberlites are diamondiferous (containing diamonds). Most of the diamonds in the country originate from the Williamson Diamonds Mine at Mwadui, where commercial production began in 1925. Currently, the mineral resources in Tanzania contribute to over 52 per cent of the country’s total exports, a large part of which is gold. The discovery and exploration of gold in Tanzania offers one of the best areas for investment in the country’s mining sector. Tanzania is thought to have the largest gold reserves in Africa after South Africa and, for this reason, the country has provided the major focus for the exploration and development of gold on the African continent, receiving as much as 15 per cent of the exploration expenditure in Africa.

Insurance Times | March-April 2016

Because of its growing importance in the region, the mining industry in Tanzania grew from 17 per cent to 27 per cent in 1999. During the 1990s, gold exploration also grew at a rapid rate because of advances in modern technology and in refining models. The focus for the exploration of gold in Tanzania has centred mostly around the greenstone belts around Lake Victoria, where several large deposits have already been discovered and are being developed. Other materials such as coal and uranium, as well as industrial minerals such as soda, kaolin, tin, gypsum, phosphate and dimension stones, can also be found in Tanzania. However, while these other minerals play a key role in the continued development of the mining industry, gold continues to attract the most interest and developments within the mining sector.

Value-addition: Dar woos India to help set up industries

By Staff Writer

anzania’s Ministry of Industry, Trade and Investment has said that the government was addressing efforts on promoting foreign direct investment (FDI) in the processing and manufacturing sectors so as to add value to the country’s abundant raw materials and boost export earnings. The announcement was made by the ministry’s Deputy Permanent Secretary Joel Malongo, who read a speech on behalf of Permanent Secretary, Prof Adolf Mkenda. This was during a two-day “India Brand Promotion” campaign that took place in Dar es Salaam. The event, organized by India’s Agricultural and Processed Food Products Export Development Authority (ADEPA) in collaboration with the Indian High Commission to Tanzania, attracted

the participation of government officials as well as exporters from both countries. Tanzania supports FDI, especially in the processing and manufacturing sectors, as it seeks to bring in new investments as a catalyst for the growth and development of exports. This is mainly through value addition to products and boosting profits, said Malongo. Up to 90 per cent of Tanzania’s pulses production is exported to India; therefore, there is a huge potential for both investors and farmers to develop projects in agricultural farming for pulses and other similar products that can be exported to any part of the world, said Malongo. On the other hand, India’s High Commissioner to Tanzania Sandeep Arya said that his government was willing to collaborate not only with farmers but all

those who want to strengthen bilateral relations and improve economic welfare at individual and communal levels. According to the Massachusetts Institute of Technology (MIT), the bilateral trade between Tanzania and India grew from $3.2 billion in 2013 to $3.7 billion in 2014. Exports from Tanzania to India grew from $0.78 billion in 2013, or 14 per cent of the total exported in that year, to $1.3 billion or 35 per cent of the total exported in 2014. Imports from India to Tanzania have remained almost unchanged at approximately $2.4 billion or 20 per cent of the total imported in the past two years, with the Asian country being the largest source of imports in Asia and the second largest in the world after South Africa.

Insurance Times | March-April 2016

Five products from Iringa, Njombe benefit from SAGCOT partnerships

Jatropha plantation in Kisarawe – photo: Mikael Bergius

By Emmanuel Onyango

he Southern Agricultural Growth Corridor of Tanzania (SAGCOT) recently held its 2015 Annual Forum consultations and discussions with stakeholders, during which it visited projects across five agricultural commodity value chains. The two-day Ihemi Cluster field visit started on 1 December 2015, with partners and stakeholders then convening for a one-day Partnership Forum in Dar es Salaam. According to a statement by SAGCOT, the learning and commitments generated through the field visit were brought to the wider forum during the meeting to determine the next steps for progressing activities in the Ihemi Cluster, and to agree on priorities for activities in the Corridor in 2016 and beyond. The “Ihemi Cluster” comprises the districts of Iringa and Njombe regions, the geographical focus of the event. The five agricultural commodity value chains of interest involve dairy, soya/animal feed, tomatoes, tea, and potatoes. As a flagship, partnership-based approach to agricultural development, SAGCOT’s Forum events are meant to be inclusive and a collaborative effort. This brought partners together from farming communities, civil society, government, and local and global companies. The Ihemi Cluster is one of six high potential regional “clusters” where significant progress has already been

Insurance Times | March-April 2016

achieved. It is expected to provide lessons that can be replicated across other geographical clusters. Highlights of the past year included the launch of a tomato partnership that brought together 14 partner organizations, with the planned inclusion of 10,000 smallholders. There was also significant growth of potato partnership with 15 partners and planned inclusion of 11,000 smallholders. Also, more than 3,600 smallholders have already been integrated into soya and animal feed value chain partnership. A School Milk Programs to promote nutrition and alleviate stunting has led to increased milk consumption through dairy partnership. “As a flagship partnership-based approach to agricultural development, SAGCOT’s Forum events are inclusive and collaborative, bringing partners together from farming communities, civil society, government, and local and global companies,” said the statement. According to the statement, last year’s forum identified high potential value chains for tea, rice, dairy products, tomatoes, potatoes as well as soya. The invite-only discussion forum also featured sessions on access to agricultural inputs, progressing the partnership approach, improving infrastructure, and developing innovative solutions to agricultural finance, environmental sustainability and green growth.

Insurance Times | March-April 2016

EAC summit moves Tanzania closer to slashing roaming tariffs By Staff Writer

The project, which was launched in 2014 by Kenya, Uganda and Rwanda, reduces roaming charges on voice calls by 60 per cent

Insurance Times | March-April 2016

anzania will soon be expected to join the One Area Network project, which seeks to harmonize telecommunications tariffs and eliminate roaming charges in the region. The Tanzania Communications Regulatory Authority (TCRA) has finalized the revision of the sectorâ&#x20AC;&#x2122;s polices and regulations to put them in line with those from the rest of the EAC. The move received a further boost during the 17th Ordinary Summit of the East African Community (EAC) heads of state in Arusha, which delegated the approval of the EAC common external tariff to the EAC Council of Ministers. The One Area Network Project falls under the common external tariff arrangement, with a due date of February 2019. The project, which was launched in 2014 by Kenya, Uganda and Rwanda, reduces roaming charges on voice calls by 60 per cent to Ksh10 or Tsh210 (10 US cents) per minute, while the cost of sending a short message service (SMS) remained flat at Ksh7 or Tsh147 (7 US cents). Communications Authority of Kenya (CA) Director of Licensing, Compliance and Standards Richard Tonui said that these tariffs contrast sharply with the cost of a voice call to areas in the region that fall outside the One Area Network, at Ksh25 or Tsh525 (24 US cents). The cost of using the SMS service is Ksh12 or Tsh252 (12 US cents) per message, constraining growth in traffic volumes and stifling integration in the region, explained. The reduction in tariffs is the product of agreement by countries participating in the initiative, which mandates exemption of charges for roaming incoming calls while charging local tariffs when a user is dialing an international or local phone

An artistic mock up of the regional e-passport, to take effect from January 1st, 2017, and the e-passport symbol inset, left

call from abroad and within the EAC. This measure, plus other factors by member countries such as cheap smartphones and extended Internet coverage, will support a growth over 5 per cent in the regionâ&#x20AC;&#x2122;s communications sector, according to Kenyan trading company Old Mutual Securities. Meanwhile, the heads of state summit admitted the South Sudan into the Community. The directed the Council of Ministers to finalize work on the establishment of a Sustainable Financing Mechanisms for the EAC. It also directed the Council to proceed with implementation of the EAC Institutional Review and give a progress report at the next summit due to be held in November. The meeting also discussed Council reports on: the model, structure and action plan of the EAC Political Federation; modalities for promotion of motor vehicle assembly in the region and reduction of the importation of used motor vehicles from outside the Community, and the promotion of the textile and leather industries in the region

with a view to stopping importation of used clothes, shoes and other leather products from outside the region. The summit noted that the verification exercise for the admission of Somalia into the EAC was not undertaken, as preparations with the government of Somalia have not yet been finalized. The summit directed the Council to undertake the verification exercise and report to the 18th Summit. The regional leaders also launched the new International East African e-Passport and directed that commencement of its issuance take effect from 1 January, 2017. The current East African and national passports will be gradually phased out from 1 January 2017 to 31 December 2018. The heads of state further directed partner states to undertake awareness creation programmes and other continuous outreach programmes on the new international East African e-passport. During the meeting, the Summit appointed Liberat Mfumukeko from

Burundi as the new Secretary General. The appointment will take effect from 26 April, 2016. The summit thanked the outgoing Secretary General, Dr. Richard Sezibera, for his tenure. The summit also renewed the contract of Charles Njoroge as Deputy Secretary General of the East African Community for a further three years with effect from 29 June 2016. Members of the Summit clarified that Ugandan President Yoweri Museveni is the EAC-appointed mediator for the inter-Burundi dialogue. The summit also appointed a team under former Tanzania president Benjamin Mkapa to facilitate the mediation. The summit also decided that Tanzania President Dr John Magufuli continues as the chairperson of the summit for a period of one year. The summit was attended by presidents Museveni, Magufuli, Uhuru Kenyatta of Kenya, and Paul Kagame of Rwanda. Burundi was represented by Boseph Butore, its 2nd vice president.

Insurance Times | March-April 2016

Finance, Economy and Business

Real estate holds the key to wealth: Massive growth expected in 2016

http://www.ipdc.co.ke

The desire to break even and stay afloat in a sea of uncertain economic growth and steady competition is forcing firms to rethink their business strategies. 60

Insurance Times | March-April 2016

By Anne Kiruku

any major firms, including insurance companies, are now dipping their fingers into the jar of honey that real estate has become.

Continues on page 62 >>

By Anne Kiruku

A tale of Two Rivers: New development a magnet of sorts

he real estate bug is slowly creeping into the insurance industry as more firms commit their funds to the sector. They include Old Mutual, the UK-based multinational insurance firm that has made a huge investment in the Two Rivers Mall that is owned by Centum EA. Old Mutual has Injected Ksh6.4 billion ($64 million) in Centum Two Rivers Mall, giving it an equivalent 50 per cent stake in the firm. The Two Rivers Mall is part of the Two Rivers complex, which sits on a 100-acre property on Limuru Road, in close proximity to the affluent neighbourhoods of Runda, Nyari, Gigiri and Muthaiga. The development is located within Nairobi’s diplomatic blue zone and is less than a 10-minute drive from the UN Complex, the US Embassy and the Canadian Embassy. The first phase will see the construction of two office towers, a hotel and the mall, among other units. Occupying a total space of 58,000 square metres, Two Rivers is tipped to be the biggest not only in the country but also in the whole East African region. Construction of the first phase is ongoing, but has missed the initial completion target of October 2015. The opening has been pushed back to March. The mall spans 62,000 square metres – unseating the Garden City Mall on Thika Road, which measures 50,000 square metres. The multinational has taken a 10 per cent stake in Two Rivers Lifestyle Centre Ltd (TRLC) in exchange for cash and has also made a convertible loan to the company that could later be turned into an extra 40 per cent equity ownership.

“The transaction will see Old Mutual ultimately hold a 50 per cent stake in TRLC,” Centum said in a statement. The deal is subject to approval by the Competition Authority of Kenya. New shares were issued to accommodate the investment by Old Mutual, through its subsidiary Old Mutual Property. The Two Rivers Mall is part of a mixed-use real estate development that is being undertaken on a 102-acre parcel of land that was acquired from the Koinange family in a transaction estimated to worth at least Ksh1 billion ($10 million). Centum Chief Executive James Mworia told an investors briefing in Nairobi that the opening date of the mall had been pushed back by three months in order “to allow all 190 tenants to finalise preparations.” In April, Centum announced that Aviation Industry Corporation of China (Avic), the main contractor for the project, had invested Ksh6.4 billion ($64 million) in Two Rivers for a 38.9 per cent stake – valuing the project at

about Ksh16.6 billion ($166 million). “The investment by Avic is particularly noteworthy, being one of the largest foreign direct investments in this region by a Chinese corporation into a private enterprise,” Centum said. Centum also disclosed that stateowned investment firm ICDC, which also holds a 23 per cent stake in Centum, had made a Ksh462.5 million ($4.63 million) equity investment, while the Co-operative Bank had contributed Ksh7.2 billion ($72 million) in debt funding for the project. The project, which is being managed by Athena Properties Ltd, will be compliant with international green standards, featuring luxurious residential apartments and lowrise office blocks being built by the China National Aero-Technology International Engineering Corporation (CATIC) and local sub-contractors. In May last year, the firm disclosed that Paris-based Carrefour, the world’s second largest retailer after Walmart, had booked 10,000 square feet of space at the Two Rivers.

Insurance Times | March-April 2016

Finance, Economy and Business >> Continued from page 60

Already, two Kenyan insurance firms have in the recent past made huge investments in real estate. Old Mutual has invested Ksh6.4 billion ($64 million) in Two Rivers Mall, a project of Centum East Africa. Britam has also changed gear and is making huge investments in the sector. The company has added a new floor to its flagship commercial Lang’ata House building at a cost of Ksh43.3 million ($433,000). According to the Cytonn Investment Management Ltd 2016 Outlook Report released in January, both local and foreign investors will continue reaping handsome returns. A growing middle class and continued urbanisation are creating ever-increasing demand for both residential and commercial developments across the country. Cyntonn Investment is an investment and real estate management company recently founded by four former top managers at Britam. According to the report, last year alone, investors in real estate reaped returns that stood at 29 per cent, a 10-year Treasury bonds yield of 12.3 per cent, securities at 10 per cent, and 91-day Treasury bills at 9.6 per cent. Cyntonn investment itself controls a Ksh4 Billion ($40 million) asset portfolio and has ongoing projects worth Ksh50 billion ($500 million). Britam, on its part, is focussing on real estate investment business to reduce investment risks and increase investor returns. According to the report, increased development of Grade A offices and stagnation of rents of Grade B offices in select areas is expected. The report also projects an increase in retail and

residential developments as developers continue to invest heavily in the sectors. The growing middle class has driven the demand for middle income housing in 2016 to an all-time high, according to the survey. To the investors, the Cytonn report advises monetary policy divergence. According to the report, the large developed economies are divided by factors such as the direction of monetary policy, as the US tightens by raising rates, and the Eurozone embarks on another phase of zero rates and quantitative easing. Divided regional and sectoral growth outlook also divides developed economies, with the greatest signs of recovery in large consumer-driven markets such as the United States. With Europe struggling to recover from the commodity route and deflationary pressure in Asian countries such as Japan, investors will remain wary of the repercussions of this divergence. This will be so especially when it comes to economies trying to pick-up inflation and have convergence on economic growth, despite using differing measures to get there. The high market correlation due to globalization, such as the one being experienced between the United States and Europe, is making it difficult for investors to diversify away from the market. According to the report, 2016 is a unique year for Kenya as it precedes the country’s general election of 2017. As a result, the political environment is bound to take centre-stage and be among the key determinants of the government’s spending in its infrastructural developments as it races to make strides

Insurance Times | March-April 2016

which it can leverage on for votes. The infrastructural developments that the government is likely to focus on, according to the report, includes projects such as roads, railways and airports, both at the national and county levels. Devolution has taken centre-stage and placed the onus on county leaders to drive development in their areas. Cytonn Investment Manager Maurice Oduor expressed optimism during the launching of the report at Sarova Stanley that if Kenya kept politics out of development and business matters, a 5.5 per cent to 6.5 per cent growth was achievable. “It is only president Uhuru Kenyatta and Deputry President William Ruto who are politicians, while the rest are purely civil servants whose task is to deliver services to fellow Kenyans,” he said. Unfortunately, according to the report, insecurity in Kenya is on the rise and this is expected to be a key support factor for economic growth in 2016. According to the report, security will determine this year’s performance as a peaceful period in the build-up to elections could see enhanced hotel bookings. Interest rates, too, could rise as the government seeks to raise funds from within, while donors and foreign investors are apprehensive on the coming campaigns ahead of the 2017 elections. The report advises investors to take a cautious approach by putting 40 per cent of their income in the fixed income securities, 30 per cent in equity, 20 per cent in alternative investment and 10 per cent in offshore investments.

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Infrastructure

Dar named best performing port in EA, beats Mombasa hands down

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By Staff Writer

The Shippers Council of Eastern Africa (SCEA), a business membership organization formed to improve the policy and trade environment in East Africa, has announced that Dar es Salaam Port in Tanzania was the best performer in East Africa in 2015.

Insurance Times | March-April 2016

his was announced through the 2015 East Africa Logistics Performance Survey, which indicates that charges for handling a 40foot container either for import or export purposes at Dar port remain lower than at the port of Mombasa in Kenya. Charges for handling a 40-foot import container at Dar es Salaam port rose from $90 in 2014 to $135 in 2015, while at Mombasa port the charges rose from $105 to $160 in the same period. In addition, charges for handling a 40-foot export container at Dar port fell from $90 in 2014 to $20 in 2015, while

at Mombasa port this rose from $56 to $80 in the same period. Charges for handling transit import containers rose from $85 to $95 at Dar port, while rising from $85 to $125 at Mombasa port. The only fee that was more expensive was recorded for handling transit export containers, which rose from $80 to $210 at Dar port against a rise from $40 to $125 at Mombasa port. This is explained by the higher shore handling fees at Dar port for containers of 20-foot equivalent units (TEUs). There were other indicators as well. The efficiency of goods clearance at Dar port improved by 18.58 per cent from 2014 to 2015, while Mombasa port improved by 8.33 per cent over the same period. Regarding communicating information when trade regulations change, Dar es Salaam port recorded also an

improvement of 4.53 percentage points over this period, against a fall of 4.51 per cent at the Mombasa port. Regarding the fight against corruption, Dar es Salaam port recorded an important improvement by 62.05 per cent against incidents of corruption and rent-seeking activities, while there was a deterioration of 12.33 per cent at Mombasa port. Dar es Salaam port is Tanzaniaâ&#x20AC;&#x2122;s principal port, with a capacity of 4.1 million deadweight tonnage (dwt) dry cargo and 6 million dwt bulk liquid cargo. According to the latest statistics by the Tanzania Ports Authority, in the period 2012/2013, Dar port registered a traffic of 12.7 million gross register tonnage (GRT), up from 12.2 million GRT in 2012/2011; this is expected to reach 18 million GRT by the end of 2016.

Insurance Times | March-April 2016

Ideas of Dr. Saqware

To empower insurance customers, we need two regulatory agencies Dr Baghayo Saqware

he financial sector is one of the most powerful anywhere in the world; the sector asserts its power over customers and often even over governments. Financial customers generally do not have the bargaining power to ensure that the agreements they conclude with providers of products and services give fair value and deliver on expectations. Various laws and regulations protect customers and ensure that they are fairly treated by financial institutions. The list of established authorities for this purpose includes the Tanzania Insurance Regulatory Authority (TIRA), The Bank of Tanzania, the Social Security Regulatory Authority (SSRA), the Capital Markets Regulatory Authority (CMRA), and the Fair Competition Commission. Indeed, financial market regulations aim to prevent and manage (when prevention is not successful) the dangers that arise from a financial institution conducting its business in ways that are unfair to customers or undermine the integrity of financial markets and confidence in the system. Of equal importance to market regulation is the objective of financial inclusion, which seeks to make the financial sector more accessible to all Tanzanians. Broad access to financial services requires the sector to provide appropriate and affordable products. Empowering customers refers to how persons involved

Insurance Times | March-April 2016

in the financial sector conduct themselves and their businesses in relation to clients, customers, and each other, with a focus on fairness and integrity. Many insurers have made significant progress in improving their practices. However, there remain many firms that still have to change their practices, and their culture, when dealing with their customers. Insurers should recognize that business opportunities lie in having positive initiatives towards customers. Some poor practices observed in the insurance business in Tanzania include:Poor disclosure of product terms leading to a weak understanding by customers of technical policy language Non-observance ethical practice, i.e. rates undercutting Poor claims handling practices, especially non-transparency of exclusion, unreasonable excesses on asset cover, underwriting at claim stage Too much focus on premium prices rather than value (where costs to the consumer are displaced to higher excess These practices are not without consequences; customer abuse has not gone unnoticed or unpunished. There are cases where regulatory actions to better protect financial customers have been enabled by appropriate laws and regulations. Despite regulatory interventions, however, many financial sector participants still appear insufficiently focused on customer needs and interest. This can be seen, for example, in the prevalence of high cost insurance products. Insurers must focus on empowering customers with appropriate information and guide them accordingly for the betterment of the entire industry. Ultimately, it is the consumer who better knows whether his or her needs and expectations are being met, and yet in many cases financial customers are not able to hold their providers, sales persons, and advisers accountable for poor treatment. The office of the Ombudsman – which is supposed to ensure a speedy and affordable redress for consumers – was established to safeguard the pillars

of customer empowerment. It is supposed to operate as an independent, impartial, transparent and effective office. But empowering consumers involves much more than the ombudsman system, encompassing complaint procedures within financial institutions, on the one hand, and improved financial literacy and capability of financial customers, on the other. In this column, and subsequent articles to follow, I wish to suggest to readers of Insurance Times Magazine two ways to empower insurance customers. Customer education The first suggestion is that retail consumers should be educated and informed about financial products and services, their own financial needs, as well as steps to take to enforce their rights in order to ensure their effective and protected participation in the sector. In this regard, there must be in place a “country financial services education programme.”There are currently initiatives to establish a National Insurance Public Education Strategy (NIES). It is my conviction that this strategy will be useful to the insurance sector, and I call for greater support from insurers, in particular, to finance this important initiative. While Tanzania is increasingly becoming more financial savvy, more interventions and innovations towards customer empowerment are required. My second suggestion is related to the fact that the financial sector needs a higher standards-tailored regulation system due to its complexity. For example, the 2008 global financial crisis demonstrated that the failure of even one major company in the financial system can trigger the near collapse of not only the financial system, but also of the broader economy, and not in its home country alone but throughout the rest of the world as well. It is my opinion, then, that a Twin Peaks system of regulation should be established. A Twin Peaks system of regulation recognizes that the two objectives of financial soundness and

treating customers fairly are better done by two separate regulators dedicated to each objective. This is because the prudential regulator and market conduct often generally have conflicting remedies when pursuing their objectives. The prudential regulator, for example, generally prioritizes the financial institutions (to the indirect benefit of its customers), meaning that in the banking and insurance sectors higher profitability through higher prices may be seen as a regulatory advantage in order to build a solid capital buffer. Conduct regulators, on the other hand, prioritize the customer of the financial institution directly, and in most cases will favour lower prices (and enhanced value) as a result. The idea of separating market conduct oversight from prudential supervision is important for the financial sector to conduct itself with utmost integrity, in the interests of real customer needs rather than simply those of the management and shareholders. Such separation promotes confidence in the sector by delivering better outcomes for customers and the economy. The more that customers believe they can cost-effectively save, transact, borrow, and manage their risks through the financial sector, the more they will endeavour to do so. A better consumer experience, therefore, encourages a stronger sector, which translates into broader economic participation and growth. Conversely, poor conduct inevitably compromises customer and economic outcomes, hurting confidence and trust – and limiting the potential for sustainable sector growth. The idea is to enhance and help the average Tanzanian manage day-today risks through sufficient financial education. Dr Baghayo Saqware is Dean of the Faculty of Insurance and Social Protection at the Institute of Finance Management in Dar es Salaam. E-mail: saqware@hotmail.com

To advertise, call Tel: +255 22 2184624 sales@insurancetimestz.com Dar es Salaam, Tanzania Published by Zurich Group Ltd Insurance Times | March-April 2016

Wanted: A new alliance between Africa’s insurers and mobile operators

By Ciku Mugambi

he mobile landscape in Africa has witnessed tremendous growth over the past decade. The number of mobile subscribers and mobile phone operators has gradually increased in many countries across Africa. This has been attributed to enhanced investment and regulation in the industry, as well as liberalization of the telecoms sector. According to a report by Informa Telecoms, Africa is on track to hit 1 billion mobile subscribers by the end of 2015. Nigeria, Egypt, South Africa, Algeria and Kenya are leading the pack in terms of the number of mobile phones in use. Mobile money is perhaps a shining example of how mobile technology can be leveraged to develop products and services that facilitate and enhance the unique needs and challenges of the African population. M-Pesa, a mobile money transfer service, was launched in Kenya in March 2007 by Safaricom. Initially, M-Pesa was a means through which money could be transferred from one person to another via a text message. Cash could then be withdrawn from various M-Pesa agents spread across the country. This product disrupted the means through which money was previously transferred across the country, especially in rural Kenya where there was a low penetration of banks and financial service institutions. Since then, M-Pesa

Through mobile money, insurance companies are able to receive premiums from customers and settle claims through mobile wallets. has evolved to include services such as utility payments and payments for goods and services at virtually all outlets (petrol stations, hospitals, restaurants, etc). One can also access various types of shortterm and long-term loans through the M-Pesa platform. There are an estimated 18 million people using the M-Pesa platform in Kenya. It is estimated that half of Kenya’s GDP moves through mobile money. Researchers Gartner predict that mobile money will become a $617 billion dollar industry by 2016. Already, 80 per cent of the world’s mobile money transactions are happening in East Africa, driven by Kenya, the epicentre of mobile innovation. Alternative platform The financial services industry in Africa has benefited greatly from the advancements in mobile money across the continent. Various banks and insurance companies have mobile money as an alternative platform for undertaking transactions. In the insurance sector, mobile money has been a great facilitator to the success of microinsurance. Microinsurance essentially involves the provision of insurance services to low-

income earners. Its products are typically low-premium products with low coverage limits, which seek to prevent the reversion back into poverty of low-income earners. Mobile operators have revolutionised microinsurance as a result of the convenient access available through the communication infrastructure of mobile network operators. Through this infrastructure, providers of microinsurance are able to promote their products, manage claims as well as handle customer enquiries through voice and sms. Through mobile money, insurance companies are able to receive premiums from customers and settle claims through mobile wallets. This significantly reduces transaction costs, which makes the product more affordable and hence accessible to low-income earners. A good example of this is “mi-Life”, a microinsurance product offered in Ghana through collaboration between MTN Ghana, Hollard Insurance, MicroEnsure and MFS Africa. This product allows users to buy life insurance products, tailor existing products to suit their specific needs, pay for premiums and lodge claims through their mobile phones. The product

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Insurance Times | March-April 2016

was launched in 2011 and has contributed greatly to the growth of life insurance in Ghana. Working in a similar fashion as bancassurance, mobile network operators can provide insurance companies with a widespread distribution network through their airtime sales agents and mobile money agents. These agents can market and sell insurance products to hitherto inaccessible areas by insurance companies at a reduced cost. They can also assist in addressing customer queries on the various products on offer and directing them to the appropriate channels for managing claims. Furthermore, airtime and mobile money agents can collect premiums from customers on behalf of the insurance agency. This model has a great potential for success due to the reduction in sales and marketing costs, since the insurance companies would simply be leveraging on already-existing infrastructure. However, it is imperative that the airtime and mobile money agents be sufficiently trained to understand the intricacies and exclusions of the various insurance products. Insurance against drought, rains UAP Insurance and Syngenta Foundation for Sustainable Agriculture have successfully leveraged on Safaricom’s M-Pesa network to promote weather-index microinsurance products

across the country. Mobile network operators can also enter into partnerships with insurance companies to promote the use of mobile network products and services and insurance products through loyalty programmes. The mobile network operators would bear the insurance costs on behalf of their customers, who would then enjoy insurance cover provided that their monthly consumption of airtime exceeds a specified threshold. The insurance cover included would then increase commensurate to their consumption of airtime. The benefit of this loyalty-based model is that insurance cover would be extended to customers who would previously have been unwilling to pay for it. This would increase the popularity of insurance products among the public once they appreciate the value they get from it, which would lead to an increase in the uptake of insurance products. This model is currently operational in Ghana through a product known as Tigo Ghana offered by Vanguard Life with support from Bima and MicroEnsure. Customers who spend a minimum of GHS5 ($1.3) for every calendar month receive a life cover for themselves and for a registered family member up to GHS1,000 ($261). The more they spend, the higher the insurance cover they receive up to the set limit of GHS1,000 ($$261).

Mobile network operators can also enter into partnerships with insurance companies to promote the use of mobile network products and services and insurance products through loyalty programmes. known as “Kilimo Salama,” designed to protect farmers in Kenya from the risk of drought and excess rains. Farmers have the opportunity of buying the cover when purchasing agricultural inputs from stockists across the country. The farmer registers for the product electronically through a scanner attached to a smart phone. Premiums are collected by the stockist and transmitted to UAP Insurance through M-Pesa. Claims are also disbursed to farmers through M-Pesa in the event that there is a drought or excess rain. These risks are monitored through automated weather stations that measure rainfall quantity

Customers receive the SMS notification on a monthly basis with the amount of insurance cover they have earned in a given month. However, the insurance cover for a particular month cannot be rolled over if not claimed in that month. Lack of readily available information related to mortality and various risks leads to overpricing of premiums in order to safeguard the liquidity and profitability of insurance companies. This leads to an exclusion of low-income earners, contributing significantly to low insurance penetration in many countries in Africa. Collaboration between mobile network operators and insurance companies will

result in the recording of transactional data, providing insurance practitioners with reliable data that can be used to design and price new products, especially those targeted at low-income earners. The benefits of such collaboration can only improve over time with increased uptake of insurance products, hence opening up a bigger pool of data. Trusted brands Insurance companies may also ride on the trusted brands of established mobile network operators to launch various insurance products. Scepticism among the general public about the insurance company’s willingness and ability to settle insurance claims has been a major deterrent to insurance uptake in Africa. However, established mobile network operators tend to have a trusted brand among the general public that insurance companies can lurch onto when introducing new products. This has worked in Kenya through a collaboration between British American Insurance Company (Britam) and Safaricom through a medical insurance product known as “Linda Jamii”. The scheme provides a Ksh50,000 ($500) outpatient cover, Ksh200,000 ($2,000) inpatient cover, Ksh40,000 ($400) funeral expenses cover and a daily cash allowance of Ksh500 ($5) if the customer is hospitalized for more than three days. Subscription for the product is done through the customer’s mobile phone, which directs him to the nearest M-Pesa agent who then registers the customer for “Linda Jamii”. Annual premiums of Ksh12,000 ($120) are collected through M-Pesa using this arrangement. Britam was able to attract a higher number of customers into the scheme than it would have done on its own by partnering with a strong and reliable brand like Safaricom. Alliances between insurance companies in Africa and mobile network operators can have a significant impact on insurance penetration in the continent. The views and opinions in this article are those of the author and do not necessarily represent the position of KPMG. Ciku Mugambi is a senior financial analyst with KPMG Kenya Deal Advisory. E-mail: wmugambi@kpmg.co.ke

Insurance Times | March-April 2016

Sucessful people

Successful people who failed at first: Never let unemployment kill your dreams!

By Orestes Sotta

early, Tanzania higher education sector (including vocational training institutions) produces 1.2 Million graduates ready to enter labour market while the economy capacity is to produce 500,000 direct employment opportunities, leaving out more than 700,000 graduates with nowhere to be employed! But, should our inability to find directly employment be the end of our dreams? According to the Forbes report re-

leased in March 2013, there are currently 1,426 U.S. dollar billionaires worldwide from 66 countries, 75% of these billionaires were never employed in their lives and 58% never graduated from University! 80% had no source of capital to start their business but had greater business ideas combined with desire to succeed! Not everyone whoâ&#x20AC;&#x2122;s on top today got there with success after success. More often than not, those whose history best remembers were faced with numerous

Insurance Times | March-April 2016

obstacles that forced them to work harder and show more determination than others. Next time youâ&#x20AC;&#x2122;re feeling down about your failures in college or in a career, keep these famous people in mind and remind yourself that sometimes failure is just the first step towards success. Below are businessmen and their companies they founded who are now known around the world, but as these stories show, their beginnings werenâ&#x20AC;&#x2122;t always smooth:

Henry Ford: While Ford is today known for his innovative assembly line and American-made cars, he wasnâ&#x20AC;&#x2122;t an instant success. In fact, his early businesses failed and left him broke five times before he founded the successful Ford Motor Company. R. H. Macy: Most people are familiar with this large department store chain, but Macy didnâ&#x20AC;&#x2122;t always have it easy. Macy started seven failed business before finally hitting big with his store in New York City. F. W. Woolworth: Some may not know this name today, but Woolworth was once one of the biggest names in department stores in the U.S. Before starting his own business, young Woolworth worked at a dry goods store and was not allowed to wait on customers because his boss said he lacked the sense needed to do so. Soichiro Honda: The billion-dollar business that is Honda began with a series of failures and fortunate turns of luck. Honda was turned down by Toyota Motor Corporation for a job after interviewing for a job as an engineer, leaving him jobless for quite some time. He started making scooters of his own at home, and spurred on by his neighbors, finally started his own business.

Insurance Times | March-April 2016

Akio Morita: You may not have heard of Morita but you’ve undoubtedly heard of his company, Sony. Sony’s first product was a rice cooker that unfortunately didn’t cook rice so much as burn it, selling less than 100 units. This first setback didn’t stop Morita and his partners as they pushed forward to create a multi-billion dollar company. Bill Gates: Gates didn’t seem like a shoe-in for success after dropping out of Harvard and starting a failed first business with Microsoft co-founder Paul Allen called Traf-O-Data. While this early idea didn’t work, Gates’ later work did, creating the global empire that is Microsoft. Harland David Sanders: Perhaps better known as Colonel Sanders of Kentucky Fried Chicken fame, Sanders had a hard time selling his chicken at first. In fact, his famous secret chicken recipe was rejected 1,009 times before a restaurant accepted it. Walt Disney: Today Disney rakes in billions from merchandise, movies and theme parks around the world, but Walt Disney himself had a bit of a rough start. He was fired by a newspaper editor because, “he lacked imagination and had no good ideas.” After that, Disney started a number of businesses that didn’t last too long and ended with bankruptcy and failure. He kept plugging along, however, and eventually found a recipe for success that worked.

Insurance Times | March-April 2016

Why not start your company today? 5 years ago when establishing my first firm the only capital I had is courage and a spirit of standing fearlessly before the face of fear. All it takes is courage and start realizing your dream today, never let unemployment kill your profound dreams! Orestes Sotta is a Senior Recruitment Specialist with expertise across multiple verticals. Supporting a portfolio of clients across East Africa to attract and retain talents. E-mail sotta@smartsms.co.tz

The way to get started is to quit talking and begin doing.â&#x20AC;? Walt Disney

Insurance Times | March-April 2016

Tours and Travel

With $100m from WB, Tanzania seeks to attract 8m visitors by 2025

By Staff Writer

The Tanzanian tourism sector has benefitted from a $100 million loan from the International Development Association (IDA) of the World Bank Group.

Insurance Times | March-April 2016

he funds are to be utilized for the implementation of the Tanzania Resilient Natural Resources Management for Growth Project, which aims to strengthen the countryâ&#x20AC;&#x2122;s tourism products and value chain. The project is focused on four priority

2014

2020

Tourists arriving at Kilimanjaro International Airport, in Tanzania

areas: The Ruaha National Park, Udzungwa Mountain National Park, Mikumi National Park, and Selous Game Reserve. It includes communities around them than could benefit from tourism economic activities. The project is also part of a World

Bank plan to help Tanzania to reach 8 million visitors a year by 2025, up from above 1 million in 2014. The prohject is focused on diversification of geographic locations and tourism segments, integration of tourism activities at existing attractions, and improvement in the quality of

2020

2025

governance in the tourism sector. The announcement was done by Tanzania’s Deputy Minister of Natural Resources and Tourism Ramo Makani, who in a recent meeting with lawmakers explained that the project implementation would start next year when improvements in tourism infrastructure such as roads, airports and accommodation facilities will be undertaken. The project will also enable the government to work on the development of a new tourism circuit in the southern region and upgrading of the Tunduma-Sumbawanga-Mpanda road to allow tourists to visit more than one site by connecting the country’s southern and western regions, explained Makani. According to the World Bank, $2.5 million has already been released to facilitate the project’s preparation and financial consulting services, which will provide concrete recommendations on how to strengthen tourism products in the four key areas. Currently, the Bank manages a portfolio of $3.95 billion spread in 25 operations; most of these funds have been allocated to the transport sector. Tourism sector is a key sector of the Tanzanian economy, contributing 17 per cent to the country’s GDP and accounting for 25 per cent of all foreign exchange earnings. The sector earned the country $2 billion in revenues in 2014.

Insurance Times | March-April 2016

Why local manufacturers need to build strong brands Tanzanian companies, especially those in the manufacturing sector, can build strong corporate brands to position them well to penetrate the global market and compete with other brands. By Jesca Mhagama

Insurance Times | March-April 2016

services. The key objective of the campaign is to provide a platform for Tanzanian consumers to patronize locally-made products and also encourage local service industries to make significant improvements in service quality, service delivery and innovation to meet challenges of international standards. The consumer survey assessment criteria for the manufacturing industry selection is based on the basis of five parameters that demonstrate overall product premium quality, labelling, packaging, competitiveness and standard certification, offering a point of difference from competitors. The assessment criteria for the service industry selection is also based on the basis of four parameters that demonstrate overall service quality, delivery, competitiveness and innovation.

d Tanzan n i ra

spend so much on packaging their products to suit their brands that people love to associate themselves with solid brands. The Tanzania Bureau of Standards (TBS) commends local companies and urges them to continue investing in their brands. For instance, investment in the pharmaceutical industry requires greater attention since medicines are not ordinary articles of commerce but products that undergo a series of laboratory processes and preparations. The efficacy of Tanzanian pharmaceutical products, and more particularly their ability to compete with existing players in the industry, requires that medicines must go through laboratory analyses and meet product specifications before they are put out for sale. Indeed, Tanzanian pharmaceutical products have gradually taken over the market in some areas of the country. TBS has launched a promotional drive to award industries manufacturing premium quality products and those engaged in offering

xperts in the standardisation industry say one major reason why Tanzanian companies continuously find it difficult to penetrate the global market is because of their brands. There is, therefore, a need for young Tanzanian firms to have a strong marketing team that has the know-how to build a strong brand. At the initial stages of the business, the focus should not be on making a profit. Multinational companies that have achieved so much and continued to gain more ground are doing so because of the strong brands they have built over the years. This is what most local companies fail to do. They try to make profits so quickly that they end up destroying their brands. In creating a strong brand, local firms should concentrate more on proper packaging for their products to attract people. If a companyâ&#x20AC;&#x2122;s products fail to get the attention of the people, then that company is in big trouble. In developed countries, companies

Insurance Times | March-April 2016

Dar urged to empower local SMEs in the gas and oil sector THIS STORY IS SPONSORED BY

By Staff Writer

ollowing liberalization of insurance distribution channels in Kenya, the regulator issued modalities to the insurance industry to streamline bancassurance operations in the country. Bancassurance is the distribution of insurance products through distribution channels of banks and microfinance institutions licensed by Central Bank. The period before 2014, when the liberalization was effected, witnessed an upsurge of pressure on the regulator involving lobbying and counterlobbying pitting licensed local banks and microfinance institutions on the

Mtwara gas pipeline viewed as developing Dar es Salaam

one hand and insurance intermediaries on the other. While Kenyan banks saw an untapped potential for additional revenue generation in bancassurance, insurance intermediaries maintained studious suspicion on bancassurance as an encroachment on their core mandate. The intermediaries got ready support from foreign-registered banks operating in the country, who were hitherto locked out of distribution of insurance products by legislation and considered the playing field as tilted against them. In authorising full-fledged bancassurance operations in the country, the regulator sought to achieve three main

objectives, namely, to deepen insurance uptake through cross-sales of insurance products to banking customers, to provide banking and insurance customers with a one-stop facility to transact and meet their banking and insurance needs, and finally to achieve financial integration. The country has over 20 million bank account holders compared to an estimated over 500,000 persons with any form of insurance cover, and hence bancassurance offered a good opportunity to sell insurance products to banking customers using a single platform. Bancassurance as a business practice involves distribution of insurance

Continued on page 77 >> Insurance Times | March-April 2016

Entertainment

Thereâ&#x20AC;&#x2122;s nothing like the Oscarsâ&#x20AC;Ś they just need more colour

By Joseph Ngari

By Staff Writer By Joe Ngari

rad Pitt, was the obvious big winner at the 88th academy awards, also known as the Oscars, for his role in The Revenant. From a time when he, an actor of repute, thought he would never take home one of the coveted statuettes, Pitt was reportedly elated to finally bag the award for best actor after 30 years of great performances in the industry. Other winners included the film Mad Max: Fury Road, which had 10 nominations and took home the

Insurance Times | March-April 2016

most awards with six Oscar wins. The Best Actress category had a star-studded line-up, featuring Cate Blanchett (for her role in Carol), Jennifer Lawrence, (Joy), Charlotte Rampling, (45 Years), Saoirse Ronan (Brooklyn) and Brie Larson (Room), who took home the Oscar. There was a sideshow that played out in the run-up to the ceremony itself that got people talking on social media as well as various news outlets: The burning issue of diversity misrepresentation in Hollywood. Jada and Will Smith were the most vocal critics, even calling for a boycott of the ceremony by people of colour. Chris Rock – a black comedian extraordinaire and host of the ceremony – joked about their calls for a boycott by saying he had thought about it. But he did not want to have to lose another job to Chris Hart (another black actor in attendance at the ceremony, who has had numerous acting roles in Hollywood productions recently). In a brilliant performance, Rock took every opportunity to address this at every chance he got. Apart from a few jokes, like parading Asian children on stage to be the butt of a gag, his performance was well received in all quarters. Hopefully the 89th Academy awards will kick the ceremony a notch higher as far as new surprises are concerned and “go long” when it comes to embracing diversity when casting for significant roles.

>> Continued from page 75 products through banking channels for the equitable and fair benefit of all stakeholders. Through bancassurance, insurance companies gain access to a wider additional customer segment, including generation of additional premiums and market expansion. Banks, on the other hand, generate additional revenue through commissions earned from insurance products sold. To customers, bancassurance is a significant value addition since they get to enjoy the benefit of a common platform for ready and easy access to insurance and banking products and services under one roof. Through bancassurance, insurance companies benefit from the advantages of modern technological advances registered by the banking sector, especially in online configurations involving payment and receipt of customer orders. Compared to insurance companies, a majority of large banks have a countywide footprint involving extensive branch networks, facilitating maximum customer outreach initiatives desired for increased insurance penetration and product uptake. On integrity matters, banks enjoy a closer relationship with their customers than insurance companies. This close relationship is based on mutual trust and confidence, which are key drivers in buying insurance. Bancassurance is better entrenched in the more developed economies of Western Europe and South East Asia. In the US, it is estimated that up to 60 per cent of life assurance products are distributed through bancassurance, compared to 40 per cent and 30 per cent respectively in France and Spain. In South East Asia, bancassurance has a significant foothold in India, Malaysia, Singapore and Indonesia. The nature of the British financial regulatory system, which requires exclusive and unintegrated scrutiny and reporting systems for each and every financial sector, impedes optimum growth and expansion prospects for bancassurance in the UK. The three main disadvantages of bancassurance are low profitability margins from fixed commission rates, bankers’ perspective of considering

the distribution of insurance products as outside their core mandate, and the lack of a seamless mutual partnership between insurers and banks. Bancassurance guidelines issued by the Kenyan regulator recommend two operational models, namely, the integrated bancassurance model and specialist bancassurance model. A “specialist bancassurance model” means a bancassurance model involving the distribution of insurance products through employees or agents of an insurance company. Banks partnering with insurance companies are required to identify their employees who will provide insurance companies with sales leads on customers with potentiality to buy insurance. The bank is required to provide the insurance partner with a data bank of their customers whose insurance needs have been assessed and found to be acceptable. Under the “integrated bancassurance model,” insurance products are to be distributed through the institution’s existing branches and the products are sold to customers through its employees. The institution may be a wholly-owned subsidiary dedicated to distribution of insurance products. Applicants can choose between specialist and integrated models to conduct bancassurance business – by establishing a bancassurance agency as a subsidiary wholly owned by the bank or microfinance institution. The agency is required to operate as a separate corporate entity licensed under the Insurance Act and any breaches attract regulatory sanctions. The agency’s technical staff and partnership arrangements, including product mix, are to be approved by the regulator. The agency is also required to submit annual returns to guarantee renewal of its trading licence. A level playing field now exists for all bancassurance stakeholders. A majority Kenyan banks moved in concert to form subsidiary insurance agencies to leverage on the opportunity created by the guidelines. The impact of this development is likely to translate into an increase in the country’s insurance penetration and uptake rate in the next three-year period.

Insurance Times | March-April 2016

Sports

No one stops Olunga: Kenyan takes scoring spree to Sweden

His coach has described him as a “total striker.” Michael Olunga, the 21-year-old Kenyan who has moved to play in Sweden, is the man to watch in the football scene.

n 17 February, Olunga joined Swedish club Djurgården on a four-year contract. Earlier, he had joined the team’s pre-season training camp on trial for a month. For the former Gor Mahia striker fondly referred to as the “engineer,” an allusion to his geospatial engineering studies at the Technical University of Kenya, this is a major step in his sporting career. He joined the university in 2013. There can be no doubt that Olunga’s star is rising and the sky is no limit. The player has the ability to shoot accurately and effectively with both feet, a technical skill that is required for a player to pass trials in Europe. He can score a spectacular goal with his left foot, which is his weaker foot. The former Gor Mahia striker has already scored twice in three appearances for his new side. He first scored a beauty in the 26th minute, turning left and right before unleashing a low shot to help his new club to a draw in the top fixture, in a By Anne Kiruku match against Steaua Bucuresti. His second goal was scored in a match against Norwegian side Aalesund, having entered the pitch in the 60th minute as a substitute. These goals have boosted the young player’s morale to a new level. The move to the Swedish club is a major milestone in his

Insurance Times | March-April 2016

Michael Olunga celebrates a goal score in one of Gor Mahia’s football matches. In sweden, (Right)

career. His dream of joining a major European League may soon become a reality. “I was very impressed with the reception I got in the team and I promised to give them my best in all the matches. After getting the opportunity, the job of delivering starts immediately as I have to score those goals as required,“ an elated Olunga told journalists immediately after being signed in. But even with his current achievements, Olunga isn’t done yet. The alumni of Upper Hill School in Nairobi says that joining the Djurgardens club was a good springboard to the big European leagues. The

young Kenyan p l a y e r started honing his skills while still a student at Upper Hill. He began his career with the Liberty Sports Academy in the Nairobi County League, where he scored 30 goals for his side during the 2012 season. This exemplary performance helped the Sports Academy finish the season unbeaten and earn promotion to the Nairobi Provincial League. Djurgardens sporting director, Bosse Andersson, has described him as a very ambitious and purposeful player who trains hard and always wants to learn and take the next step. “The development potential is huge, so with the peace and quiet of our Djurgården environment he can develop into a striker able to play in the biggest leagues in Europe. That’s Michael’s own ambition and he has the characteristics required for it,” said Andersson, when asked about Olunga’s future in the club. After finishing the 2013 season with two goals for Tusker, Olunga was loaned to fellow Premier League side Thika United for another year, before joining Gor Mahia. Before the beginning of the 2015 season, Olunga finished the season as the club’s top

scorer in the league, with 19 goals to help the side win a record 15th league title without losing a single match, including the second goal in a 2–0 win over Muhoroni Youth in their final league match of the season. This marked the beginning of the rising star for the. He made history in January for moving from just a rookie a year ago to becoming the first player in that season to score four goals in one match, which sent his tally to 11, effectively taking over as the league’s top scorer at that stage. It was after his exemplary performance at Tusker that Olunga made his debut for the Kenya national team, Harambee Stars, in a friendly against Seychelles at the Stade Linité in Victoria on 28 March 2015. He scored his first goal for Harambee Stars in a 2017 Africa Cup of Nations qualification match against Zambia at the Nyayo National Stadium, although he could not stop the national team’s 2–1 loss. His weakness? The striker has admitted on his club’s website that he can be a slow starter, but once he gets going he can move on a roll with his scoring. He admitted that so far, he has only played friendlies, though it felt like a good level for him. Though he says he misses Kenyan food and the warm climate back home, he acknowledges that everything is well organized in his new club and the quality of the training is really good. The young player says that he looks up to Dutch striker Robin van Persie as his role model.

Insurance Times | March-April 2016

OLUNGA

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Samora Avenue | Harbour View Towers, 4th floor | Suite no.422 P.O.Box 12718 | Dar-es-Salaam info@tanafricaninsurance.com Tel: +255 22 2117634 Cel: +255 764 990982 : +255 687 764788

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Azimio Rd. | 1st Floor Qutbi Building | Plot 06, Room No. 101 P.O.Box 16478 | Arusha info@tanafricaninsurance.com Tel: +255 27 2546422 Cel: +255 764 990982 : +255 687 764788 Insurance Times | March-April 2016

Insurance Times | March-April 2016