Fraud and high operational costs eating into insurers' profits

Business Reporter

Mwananchi Communications Ltd

What you need to know:

In Uganda and Kenya management expense is 52 and 32 percent respectively, while claims ratio stands at 42 percent and 62 percent, respectively.

Dar es Salaam. High management costs and fraud are eating into the profits of insurance companies, The Citizen has learnt.
For an insurance firm to make a profit, its Gross Written Premium should be more than management expenses and claims.
Insurance firm’s management expenses include running costs as well as commissions paid to intermediaries, while claims are the formal requests people lodge with their insurance provider for reimbursement against losses covered under the insurance policy.
Data provided by industry players shows that the claims and management expenses ratio is higher in Tanzania compared to Uganda and Kenya. For instance, in Tanzania, management expense stands at 46 percent while the claims ratio is 54 percent, bringing a total of 100 percent.
In Uganda and Kenya management expense is 52 and 32 percent respectively, while claims ratio stands at 42 percent and 62 percent, respectively. Totals for each country comes to 94 percent, leaving a profit margin of 6 percent.
“To make a profit, you need to remain with a balance after deducting management expenses and claims. Analysing Tanzania’s, you get 100 percent for both while in Uganda and Kenya, they remain with a balance of 6 percent which drives them into profitability,” Association of Tanzania Insures’ (ATI) chairman Khamis Suleiman revealed to The Citizen.
He said based on the data, an actuarial analysis was conducted and came up with advice that players in Tanzania’s insurance industry should come up with ways of reducing the claims and expenses ratio to raise profitability.
On fraud, he said: “A person may claim for Sh3 billion but after an evaluation you find out that the actual amount to be paid is only Sh500 million. Hence, if officials are not keen enough, this might eat into profits,” he said. He, moreover, noted that Tira has set the ceilings for the amount that companies are required to pay brokers and bancassurance agents accordingly.
Tira was also collaborating with insurers in efforts to introduce a digital system that would allow information sharing among players so as to reduce fraud.
Insurance Commissioner Baghayo Saqware said efforts were on going to contain fraud, adding that currently there was no system that could link all firms so that they could monitor people who submit fake documents.
“In the meantime we call the public to report to us if someone submits fake documents to claim payment by insurance firms,” Prof Saqware said.
UAP Insurance’s claims manager Michel Emmanuel said motor insurance portfolio was a major contributor to the industry underwriting income, but it also happens to be the class that leads in claims booked in the industry.
Mr Emmanuel said an online portal, TiraA Mis, the only of its kind in East Africa which to a large extent has made it possible to minimise if not to eradicate incidences where the public was sold fake motor covers/stickers/token, adherence to minimum premiums rates were abused by way of undercutting and untimely collection of premiums.
“This portal has breathed in life to the insurance companies motor book; year by year growth of outstanding premiums,” he said.