John D. Rockefeller said the secret of success is to “get up early, work late and strike oil.” Uganda has struck oil; around 6.5 billion barrels are scheduled for commercial production in 2020. This drive towards production, which government estimates will attract investment of up to $8 billion, has raised the prospect of increased demand for auxiliary services, including insurance.

“An oil and gas co-insurance syndicate has been established to pool the industry’s technical and financial capacity thereby better positioning us to underwrite oil and gas risks,” says Miriam Magala, Chief Executive Officer at industry lobby, Uganda Insurers Association. “In addition, the syndicate is serving as a capital pooling mechanism.”

Insurance companies in Uganda held around $177 million worth of gross written premium in 2016, up by 3.6% from the previous year, according to the Insurance Regulatory Authority of Uganda (IRA). But this compares poorly with average growth of 17% in the last five years, even as assets increased by 9.3% to $114 million, says Kaddunabbi Ibrahim Lubega, the IRA’s Chief Executive Officer. The market paid $72.8 million in claims, while life insurance registered the most growth at 32.7% in sum assured.

Should Africa Ditch Ubuntu?

Premium growth will likely more than double to 8% this year, according to Magala, on increased regulatory enforcement of workers compensation, motor third-party, ring-fencing of marine insurance, and implementation of a $1.4-million government subsidy for agriculture insurance. The industry expects penetration to increase from just less than 1% of GDP to 3% by 2025, she adds.

“We expect a stimulus effect from large public investments intended to address infrastructure constraints and prepare Uganda for oil production,” says Lubega. “In readiness of the market, an oil and gas syndicate on a co-insurance basis was approved.”

As prospects increase, two of the continent’s largest reinsurers, Africa Re and Zep Re, have set up offices in the capital, Kampala, as they seek to tap cessions emerging from the oil and gas sector.

In anticipation of increased activity, the government pushed reforms through parliament last year to improve the financial system, introducing risk-based supervision where an insurer’s capital requirement will be automatically adjusted – depending on the risk they are carrying. The amendments also covered compliance with insurance core principles and financial action task force (FAFT) regulations, according to a ministry of finance report, which also notes that the amendments also improved harmonization with the East African Community bloc requirements.

A separate amendment also introduced bancassurance, a distribution channel that is expected to promote growth of the sector due to the vast bank network in the country, says Lubega.

Agriculture Behind Africa’s Health

In agriculture, the insurers lobby estimates companies will underwrite $2.3 million in the next six months, before applying the government subsidy, as the pilot scheme looks to guarantee returns from crop and livestock farming, according to Finance Minister Matia Kasaija.

Insurers needed to work closer with farmers to understand different crop varieties and planting windows in order to reduce commercial premium rates. Corn is covered as high as 23.9% versus a 10% average affordable to farmers, according to Shadreck Mapfumo, the International Finance Corporation’s Senior Financial Specialist.

“I don’t think we are ready to provide sustainable agriculture through insurance when we don’t have the man power,” he told an industry conference, in Kampala, in May.

According to Magala, other areas of opportunity include a new requirement to check for motor third party insurance as part of the mandatory vehicle inspection checks, which should see compliance boosting premiums. The government has also made it mandatory that policies on ships, aircraft and other vehicles registered in Uganda – as well as goods imported from other countries – be issued by locally licensed insurers in Uganda. Unlike many countries, the Ugandan government does not insure its assets. If it did it would see a windfall in excess of $27.5 million covering public sector workers compensation, fire and public liability insurance, says Kasaija.

Despite low insurance penetration in Africa, analysts remain bullish on Uganda.

“Foreign investors are interested in Uganda due to the positive growth trend and favorable business environment,” says Arthur Kamp, Investment Economist at Sanlam Investment Management. “Uganda is going to exceed Kenya in terms of total population numbers by 2040. Population growth is an indicator of development.”

Ugandan insurers are taking note. – Written by Joseph Burite