Rwanda: Businesses, Homeowners Seek Help Over Rising Insurance Premiums

The rising cost of insurance premiums is driving up mortgage costs, making it harder for the already Covid-19 hit homeowners to repay their loans on time.

This comes after local insurers engaged in general insurance business, which involves non-motor and non-health coverage, increased their prices in December 2020.

The price review, which was approved by the Association of Insurers' Rwanda (ASSAR) in October 2020, is binding to all operators in general insurance business.

The association backed the price changes by a 2018 actuarial study on non-motor prices.

As a consequence, insurance prices for non-motor and non-health coverage across the market have gone up as clients are realising when renewing their premiums.

Locally this has affected home and property owners as well as business who are often the largest subscribers of such products.

With the price revision being unanimously agreed by all firms and binding, local insurers have been accused of cartel-like operations where pricing and business approach is on the basis of a unanimous agreement as opposed to market forces.

Unanimous price revision was also not on the basis of increased risk which is often the basis of pricing as per actuarial science principles.

The New Times came across multiple instances of insurance clients who have had pricing go up especially property insurance despite the fact that risk factors haven't gone up.

Some homeowners told The New Times that while they mandatorily have to have insurance as their properties are on mortgage, they have seen prices rise by over 50 per cent and in some cases more.

Businesses, which often require to have a range of insurance coverage, on the other hand, saw a bigger jump in their premiums with some saying they rose by up to 100 per cent despite never having a single peril occurrence.

Previously, the insurers have come together to attempt to drive up prices for their services.

In January 2018, for instance, the association announced an increase in insurance premiums by up to 73 per cent for private and public vehicles.

Following public outcry, the association agreed to increase in two phases at 60 per cent and 40 per cent.

The latter phase has yet to be effected largely due to public outcry and petitions to regulators and government.

Denise Rwakayija, the Managing Director of Rwanda Insurers Association, defended the recent move by insurers saying that a 2018 actuarial study on non-motor prices showed that the non-motor insurance products were under-priced, and identified a minimum rate for non-motor insurance products.

Rwakayija who was speaking on behalf of insurance firms (most of them preferred the association to speak on their behalf) said that the rate was lower than what each insurance company had in their pricing models making under-pricing a norm.

She cited previous trends and instances of negative competition amongst insurers which had led to abnormal under-pricing forcing the rates to go down in the past years.

"Insurers realized that the trend was a bad practice and affecting product viability. They committed to reverse the negative trend going back to normal," she said.

"It is normal across sectors for basic services to have minimum rates. Consultations in hospitals, clinics, basic legal services fees in law firms and petroleum products tend to have similar pricing," she defended insurers.

On why premium revision was not done on the basis of risk but, she said that the magnitude of risk is one of the key factors but not the only one.

"Each company designs its pricing models using insurance experts called actuaries. They are skilled in product valuations and they study market risk factors before setting the pricing models," she said.

The insurance sector in Rwanda is regulated by the central bank.

On the issue, the central bank said that the price review was mainly based on the recommendations by an independent actuarial study which revealed that insurers were incurring underwriting losses.

The regulator told The New Times that they were ongoing discussions with members of the Insurers' Association about the premium rates changes to ensure that price increments are reasonable and sustainable.

"Note that the current legal and regulatory framework prohibit cartel arrangement and (National Bank of Rwanda) NBR as the regulator will do the best to avoid such malpractice on Rwanda's insurance market," Dilme Niyonizeye, the Director Pension and Insurance at the central bank said.

On whether the low levels of insurance penetration in Rwanda could have an impact on the sector's revenue and profitability, Niyonizeye said that it could be one of the reasons some products are not profitable as expected due to the fact that the volume of the business for some products does not generate enough revenue to cater for claims and administration costs.

"Our position on this point is that there is need for insurance companies to re-engineer their business models by focusing on insurance awareness and education programs so that consumers understand the benefits of insurance products, increase innovation and products development and leverage on the Information technology (Fin-techs) to increase coverage while minimizing their costs," he said.

The central bank recently set up a financial consumer protection arm which aims at promoting and protecting the interests of the financial service consumers.

Gerard Nsabimana the Director of the Market Conduct Supervision Department said that while the central bank does not intervene in price setting for products and services, the law sets transparency standards that can allow the consumer to have a wide range of choice and make informed decisions.

"Insurance service providers are required to be transparent in a way they communicate to consumers about their products and services as well as the associated costs. In addition, the insurance service provider shall need to issue the key facts statement to allow the consumer making an informed decision," he said.

He added that the cost of a financial service provider should be determined in a way not detrimental to the Financial Service consumer or the provider.

While the insurers association say that the development was a corrective measure, clients continue to view it as a cartel-like measure given that it is binding across all players and does not allow for innovation.

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