Nairobi — The African Trade Insurance Agency (ATI) and UAP Uganda will jointly roll out an insurance cover to shield businesses against losses caused by political unrest.

The product, known as the Political Violence, Terrorism and Sabotage cover offers protection to clients' property up to the tune of Ush10 billion ($5 million), and includes risks against rebellion damage in transit, coup d'états and ordinary business interruptions.

The need for such a product was driven by political violence witnessed in September 2009 in which wholesale and retail shops, vehicles, commercial premises as well as consumer goods vendors suffered significant losses from charged mobs.

The political risk insurance cover is also meant to spur higher lending in commercial banks that slow down credit activities during election cycles, for fear of losing valuable collateral. It is also expected to ease nervousness among foreign investors in the run up to elections, as they affect foreign direct investment flows.

"We are optimistic about economic growth which is projected at 6.3 per cent this year and is likely to generate more trade. We will provide vital protection to business people as the election season draws closer," said Allan Mafabi, ATI's resident underwriter for Uganda.

Though launched recently, ATI and UAP Uganda unveiled the Political Violence, Terrorism and Sabotage product on the Ugandan market in January. The cover is expected to steer growth in bank lending ahead of the election season, but some sector players remain sceptical.

"It is a good product but it might not make significant impact in the near future before it becomes popular," said a senior executive at Orient Bank Ltd who chose anonymity. He added: "Insurance still ranks lower in our credit assessment criteria when compared with a client's specific business risk, credit history and ability to pay back."

However, some insurance executives attribute lack of enthusiasm among bankers towards the product to limited market understanding. "It is still a new product and we will take a while to gain strong appreciation among all stakeholders. It will however boost insurers' capacity to absorb clients' business risks and maximise product depth," said Solomon Rubondo, of Goldstar Insurance Company, a local player interested in offering the political risk cover as well.

Member countries in the ATI structure include Uganda, Kenya, Tanzania, Rwanda, and Burundi alongside other members of the Common Market of Eastern and Southern Africa region.