The Central Bank of Rwanda will commission a study that will determine whether insurance companies should raise motor insurance premiums again in January.
The move was announced last week when central bank governor John Rwangombwa appeared for the first time before a joint session of parliament to present the bank’s previous activities and plan of action for next year.
Just this year in January, insurers decided to revise premiums upwards for car owners at the rate of 73 per cent, claiming they have been making losses due to low premiums and a high rate of claims by customers.
The increase in premium rates was expected to be done in two phases, with phase one, which started this year in January, seeing the increase of the premiums go up by 60 per cent, while the remaining 40 per cent was carried forward and was expected to come into effect in January 2019.
In his presentation before lawmakers last week, governor Rwangombwa said that even with a 100 per cent hike in premium rates, insurers will still operate under losses and more research was needed to assess a number of issues at the sector level.
“About 50 per cent of insurance incomes are made from car insurance and most have been registering losses.
Thus we have asked for more research to determine whether there should be more charges next year,” he told lawmakers.
Members of parliament and the public were not convinced about the increase despite the sector’s seeming growth.
“Insurance companies just decided to raise premiums the other day, did they conduct consultations with all stakeholders? Did they factor people’s financial growth, the central bank should also appeal on behalf of the public,” said MP Jean Paul Murara.
“We have seen a number of players coming into the insurance industry, we have seen acquisitions and expansions of some of these insurers, yet they now claim to have been making losses. How is this possible?” asked Jean Marie Nshimiye a businessman in Kigali.
Insurers welcomed the decision by the regulator saying more should come to light about the huge losses the sector incurs and which other areas in the industry need more attention.
Alex Bahizi, the deputy president of Association of insurers in Rwanda (ASSAR) and the head of BK insurance, told Rwanda Today that the second study, which has been commissioned by the regulator will hopefully unearth other underlying challenges and that insurers will comply with the findings.
“The study looks into many aspects, I don’t be believe it will look into the 60 and 40 per cent, when you commission an insurance study, you don’t give the researcher one task, they will look into the primary issue of pricing, and other issues;
“We don’t have any query on the research because we are sure it will get the same results that will show the 40 per cent is required, and if scientifically, it is proven that 60 per cent is enough, we won’t complain, but even the governor knows that they are still losses,” said Mr Bahizi.
In response to criticism that the sector has been vibrant and saw more players expressing interests in investing despite identified losses, Mr Bahizi said investors are not able to calculate profits and or losses in less than five years.
“Investors look into a number of factors; they look at the stability, security, opportunities, purchasing powers, the inflation rate and so many other issues and gauge which sector to venture into without necessarily targeting quick gains;
“So it simply shows that there is traffic in the economy, there is trust and projected opportunities, so it is upon the industry players and the regulator to make sure that what the investors think is true,” said Mr Bahizi.
This year, and in response to a 2013 study by insurers, the mandatory third party insurance policy increased by 40 per cent to 73 per cent, while the comprehensive package has increased from 3.5 per cent of the value of the vehicle to 4.5 percent.
Just this year in January, insurers decided to revise premiums upwards for car owners at the rate of 73 per cent, claiming they have been making losses due to low premiums and a high rate of claims by customers