Radical changes loom in insurance industry

The Tanzania Insurance Regulatory Authority (Tira) yesterday issued a new circular detailing sweeping changes in the insurance business in the country.

The circular, issued by Commissioner for Insurance Baghayo Saqware, specifically seeks to address market challenges resulting from externalisation of insurance business outside the country through a practice known as reinsurance.

It particularly prohibits the externalisation of long-term insurance business in the country, while also placing some limits on the size of short-term insurance business that could be externalised.

“No long term business written in Tanzania shall be externalized; Long term insurers shall endeavour to place locally all long term business written in the country through reinsurance with locally registered reinsurers, co-insurance with other insurers transacting similar classes of business, insurance pools or such similar arrangements,” reads a statement in the circular, which is expected to come into effect on January 1, 2018.

The changes highlighted in Circular No. 55/2017 are also intended to raise the contribution of the insurance sector to the national economy.

Externalisation of insurance risks is a practice whereby insurance companies decide to share the risk of insuring an entity with foreign reinsurers and reinsurance brokers.

While noting that externalisation of insurance risks is a normal business practice in the insurance industry, the circular says that the practice has been largely abused in Tanzania, resulting in a number of drawbacks.

“With abuse, the practice denies other participants within the market with opportunities to enhance their incomes and market share due to non-involvement in the risks,” says Dr Saqware. It also retards the local insurance industry’s technical capacity to handle large and complex risks, which are placed with entities in other markets thus denying the local economy financial resources which could be invested locally.

Dr Saqware said the circular was a result of consultations with insurance stakeholders in and outside Tanzania, adding that it was a response to such abuses as 100 per cent externalisation (fronting) of risks which could be partly retained locally. Some players have also been reportedly fronting extremely low value risks with low sums insured, resulting in low premiums payable and low premium levy to Tira.

There has also been poor involvement of local insurance companies in assuming part of risks intended to be externalised through co-insurance arrangements.

There has also been a tendency by some insurers in the market to engage in co-insurance arrangements with sister or parent companies based in other jurisdictions, while in some cases there has been collusion among local insurers whereby all or most of the insurers invited to participate in assumption of portions of certain risks would indicate their inability to participate.

During the June 2017 parliamentary sitting, the House passed the Written Laws (Miscellaneous Amendments) Act 2017, which amended the Insurance Act, Cap 394 with a view to empowering the Commissioner for Insurance to streamline premiums charged by various indemnity (insurance) firms and set minimum and maximum charges.

Dr Saqware said the changes would also empower local insurance firms by ensuring that all products imported into the country were provided with insurance cover by a companies that were registered locally.