FREQUENTLY ASKED QUESTIONS Qn 1. What is the role of the Insurance Regulatory Authority of Uganda (the Authority) in this country? The Authority was established under Section 14 of the Insurance Act (Cap 213) Laws of Uganda, 2000 as amended by the Insurance (Amendment) Act, 13, 2011. The main objective of the Authority is to ensure effective administration, regulation and control of the business of insurance in Uganda. The functions of the Authority are to: (a) (b) (c) (d) (e) establish standards for the conduct of insurance and reinsurance business; license all persons involved in or connected with insurance business including insurance and reinsurance companies, insurance and reinsurance intermediaries, loss adjusters and assessors, risk inspectors and valuers; approve texts of policies, proposal forms; approve minimum rates of insurance premiums and maximum commission in respect of all classes of insurance; safeguard the rights of insurance policyholders and insurance beneficiaries to any contract; 1
(f) (g) (h) (i) (j) (k) provide a Bureau to which complaints may be submitted by the members of the public; advise the Government on adequate insurance protection and security for national assets and national properties; promote a sound and efficient insurance market in the country; supervise and control transactions between insurers and reinsurers; ensure strict compliance with the provisions of the Statute and regulations made under it and any other law relating to insurance; and undertake other functions as the Minister may designate. Qn2. Ugandans have not as yet appreciated insurance, what are you planning to do and do you see any light at the end of the tunnel? The lack of appreciation by Ugandans on the roles of insurance stems from a number of historical events. The setback in the development of insurance, especially life insurance, from around the mid-1970s to the mid 1980s was due to factors like: (a) The Economic War which led to economic decline due to the exodus of tens of thousands of non-ugandan Asians and other foreign investors; hyper-inflation; scarcity of essential commodities and closing down of factories and other business establishments; livelihoods subsisting on quick-money illicit trade; etc. 2
(b) Internal armed conflicts and non-settlement of many insured losses as they resulted from excluded causes. Thus many people lost faith in insurance. (c) The May 1987 Currency Reform which in the area of insurance reduced the policy values to the 1/100th policy values to the 1/100th which was further reduced by a 30% tax. (d) The HIV/AIDS scourge which retarded life insurance transactions. (e) Moral hazard which led to the suspension of Sections 16 37 of the Motor Vehicle Insurance (Third Party Risks) Statute, 1988 relating to the Nominal Defendant Council which had been meant to cater for traffic accident victims of uninsured or unidentified motor vehicles. Despite the above mentioned historical setbacks, insurance has continued to play its role in society. The efforts underway include: Increasing on the Consumer Awareness campaigns; Encouragement of more players to venture in the microinsurance business so as to cater for the low income households; Encouraging insurance players to innovate new products in line with market needs; Increased enforcement of the Workers Compensation and Motor Vehicle Insurance (Third Party Risks) Acts; Ensure that Uganda insurance companies are strategically located to take a big part in the Oil industry; Ensure timely settlements of insurance claims; 3
Qn3. What are some of the challenges facing the industry? Herebelow are some of the challenges to the insurance industry: There is a shortage of professionally qualified manpower for more effective, innovative and modernized management of the insurance industry. Some of the insurance players are yet to fully computerize their operations. There is a vice of undercutting insurance premium rates by some insurance players. There is a challenge of enforcing the Workers Compensation and Motor Vehicle Insurance (Third Party Risks) Acts. The lack of a Ugandan reinsurance company to cut down on the level of capital outflow through reinsurance. Some insurance players expense ratios are above the industry average, an indication of low operational efficiency. The low market penetration and low insurance density etc. Qn 4. Uganda is a signatory of the Common Market Agreement, how can our insurance industry benefit from that arrangement? 4
The benefits/opportunities of the East African Common Market to the Uganda Insurance Market - A bigger market of 142 million people shall stimulate economic growth creating dynamic gains from trade. - Expected foreign direct investment can lead to the transfer of technological, marketing and managerial know how to host nations; - With full freedom of movement of all factors, of production between member countries, the factors of production become more efficiently allocated further increasing productivity. - For business within the market and consumers, a single market is a competitive environment making the existence of monopolies more difficult. Inefficient companies will suffer a loss of market share and may have to close down. - On the other hand though, efficient firms can benefit from economies of scale, increased competitiveness, lower costs and ultimately, increased profitability. - Consumers are benefited by the single market in the sense that the competition environment brings them cheaper products, more efficient insurance providers of products and, also, increased choice of insurance products. - A common currency makes it easier for one to compare prices across the EAC region. This lowers transaction 5
costs, harmonizes valuation of assets and analysis and reporting on the financial situation of companies. - Its easier to control inflation and hence encourage saving (life products). - Insurance companies, responding to the integration are likely to create new business structures through mergers, acquisitions, joint ventures, etc. - The partner states would review and harmonize the insurance laws to facilitate insurance business. The harmonized laws would be hedged against the IAIS insurance core principles for the bigger market. - Given the similar economic landscape, the cost of doing business will be reduced. - The Insurance Regulators, in the EAC have already signed a Memorandum of Understanding. This will enhance the harmonization of the regulatory laws. - Collaboration by the regulatory authorities with other bodies for benchmarking and training purposes. - There will be enhanced investment opportunities for the insurers across the region. - Easy access to capital finance from the Capital Markets (cross listing easier). - Competent skilled labour force will be readily available. 6
- Further collaboration of the Insurers Associations shall enhance self-regulation. Qn5. Are there any regulatory frameworks to address insured s concerns incase of any problems? Yes. As per Section 15 (f) of the Insurance Act, the Authority set up a Complaints Bureau to handle complaints against insurance players. This has helped in protection of the rights of insured s and other insurance beneficiaries. The public is urged to always lodge complaints with the Bureau for prompt settlement of complaints and avoidance of lengthy and costly court cases. Section 8 (b) of the Insurance Act allows for the utilisation of an insurers security deposit for the discharge of any liabilities arising out of policies in the event of closure or winding up of the insurance business. This helps protect the interests of policyholders. Section 8 (a) of the Insurance Act would enable an insurer to withdrawal from the security deposit an amount of not more than 50 percent of the security deposit in case an insurer suffers a substantial loss arising from liability to claimants and the loss is such that it cannot be met from its available resources. This protects insurers during hard times. Qn6. What options does the Authority have to discipline insurance companies that default or refuse to compensate clients? The Authority has got powers under the Insurance Act and the Regulations thereunder to discipline insurance companies that 7
default or refuse to compensate clients and the Insurance Act provides for a Complaints Bureau where the public can file complaints against the players. The Authority endeavours to resolve these complaints. The Authority would order the insurer to pay and if they do not, in extreme situations the insurers licence can be suspended or revoked. The insurer can also be either publically or privately admonished. Qn7. How does the Motor third party insurance work? The essential characteristic of the mandatory Motor Third Party insurance cover is to provide indemnity where the insured is legally liable to pay some compensation to a third party for bodily injury or death as a result of use of Motor Vehicles. Qn8. What is the procedure that is required to be followed by a victim to receive his/her compensation? The procedures/ documentation required before settling a claim depends on the type of cover. Different insurance covers may require different documentation before settling a claim. For example, the documents that may be required before processing a Motor Third Party insurance claim may include: a) A Police Abstract Report for purposes of proving that an accident actually occurred and the claimant was the real victim of the accident. 8
b) A Post Mortem/Death Certificate. This provides evidence that the victim actually died and death was a consequence of the accident. c) A letter from the Chairman of the Local Council and letters of administration. These serve to introduce the victim especially when he has no recognized identification. Letters of administration serve the purpose of ensuring that the administrator of the estate of the deceased is the person actually paid. Please note that the accident victim is not required to directly claim from an insurer, but from the vehicle owner (insured) as provided for in section 39 of the Motor Vehicle Insurance (Third Party Risks) Act 1989. Additionally, in case of non fatal accidents, a medical report and medical bills may be required to ascertain the medical expenses incurred by the victim. Qn9. What happens to policyholders when an insurance company closes? Once an insurance company closes, it has to continue servicing policies on a run off basis. However, following the passing of the amendments to the Insurance Act, a Policyholders Compensation Fund to cover for insolvent insurers would be established Qn10. What are some of the achievements of the Authority (i) Increased confidence in the Market 9
Increased confidence in Uganda s Insurance Industry has been attained as can be evidenced, for instance, by entry into the market of the Insurance Companies whose parent Companies are based in Kenya, South Africa, Zimbabwe, and Malawi. (ii) Licensing Licensed only those players who comply with the regulations of the Insurance Act. All legitimate players have been licensed and published in the media and our website so that the insuring public gets to know which Insurer, broker, Loss Assessors, agent to deal with. (iii) Ensuring a sound and stable Insurance Industry Carrying out on-site and off-site inspections of Insurance companies to ensure, inter alia, that insurance players continue to be financially sound and liquid; continue paying claims promptly and conducting Insurance business in accordance with best insurance practices. (iv) Carries out both off-site and on-site inspections of the insurance players to ensure that their operations are compliant with the Insurance Act and hence promoted, maintained the standards for the conduct of insurance and reinsurance business in the country. (v) Continued with the maintenance of harmonious relations with insurance players individually and through their professional Associations, other Government Regulatory and economic development Authorities as well as with sister insurance regulatory Authorities within the EAC 10
region and beyond. Uganda is the current chair of East Africa Insurance Supervisors Association. (vi) Supported the training of the market insurance manpower by say, providing resource persons for some of the Insurance Institute of Uganda s training events and facilitating the holding of International professional examinations. (vii) Ensured that all agents that are licensed have either undergone a course in Certificate of Insurance Proficiency or have registered to undertake the course. (viii) Established a complaints bureau and has continued to receive and handle complaints through the bureau. Most of the complaints have been resolved through the mediation of the Authority. (ix) Has approved minimum premium rates and forwarded them to insurance companies and brokers for implementation. (x) Issued guidelines to insurance players on various issues especially premium payment and claim settlement. (xi) Issued insurance claims procedures to the public (xii) Ensured strict compliance with the provisions of the Insurance Act and, not only to ensure establishment of good standards for the conduct of insurance and reinsurance business in Uganda, but also in the interests of all stakeholders in the Uganda Insurance Industry. 11
Qn11. What does the Insurance (Amendment) Act about? The Insurance (Amendment) Act, 2011 seeks to: (i) remove any ambiguities and to ensure clarity by defining technical terms that are used in the Act; (ii) provide for microinsurance and health insurance as classes of both life and non-life business; (iii) enhance corporate governance in the insurance sector; (iv) enhance the development of the insurance sector in Uganda by increasing the amount of the security deposit available to an insurer from 15% to 50%; (v) enhance the development of the sector by providing for the policyholders Compensation Fund to be used to compensate the policyholders of an insolvent insurer; (vi) provide for the arbitration of complaints as an additional function of the Authority; (vii) streamline the composition of the Authority (Board Members); (viii) Allow banks to act as intermediaries in insurance business which will go a long way to increase the sales channels leading to increase in the insurance penetration; 12
(ix) Bring the operations of the Health Membership Organisations (HMOs) and Health Insurance Organisations (HIOs) under the purview of the Act; (x) Allow for the setting-up a National Reinsurance organisation so as to limit on the capital outflow from the country.etc 13