Why do most Ugandans neglect insurance?

by Mmeeme Leticia Luweze
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Uganda has a population of 46,257,411 people. Out of this population, the findings from the FinScope 2018 survey show that only 1% of Ugandan adults (220,000) have formal insurance coverage.

The study further shows Uganda’s uptake of formal insurance is the lowest in the region, with the uptake of formal insurance being 6% in Kenya, 9% in Rwanda, and 15% in Tanzania. It notes that in Uganda, there is a higher increase in informal insurance uptake compared to that of formal insurance usage, yet informal mechanisms do not guarantee risk protection. Notably, 40% of adult Ugandans use informal risk protection mechanisms, while 59% of adult Ugandans have no form of risk protection (Financial Sector Deepening 2018).

Uganda had its first-ever local insurance company in 1948. This company was named East Africa General. However, it experienced limited success until the year 2010. Many Ugandans then believed that insurers were untrusted and did not honor claims payments.

Seventy-five years later, the insurance industry still faces some of the challenges that it started with in its first year. The FinScope 2018 survey shows that public mistrust is still among the reasons for the low levels of insurance uptake in the country. They equally attribute low public awareness and a narrow insurance product range, especially for low-income earners, among the reasons for low insurance uptake.

In 2022, the insurance sector experienced substantial success and growth, with a notable increase of 20.4%, surpassing the 10.61% growth recorded in 2021. Statistics released by the Insurance Regulatory Authority of Uganda (IRA) reveal that the Gross Written Premium (GWP) surged from Ushs1.183 trillion in 2021 to Ushs1.425 trillion in 2022.

Despite these impressive figures, the FinScope 2018 survey found that Uganda’s insurance penetration stands at an estimated 1%. It suggests that the greatest opportunity for increasing insurance uptake exists in developing micro-insurance products.

Micro-insurance in Uganda is a small, but growing part of the insurance market. Alhaj Ibrahim Kaddunabbi Lubega, the CEO of the Insurance Regulatory Authority, mentioned during the 57th CEO’s breakfast meeting in September 2023 that Uganda’s insurance market is not yet very developed. He sees clear growth potential, especially with micro-insurance. He added that insurers face challenges in expanding micro-insurance beyond credit life because people don’t know much about insurance, and there is not much trust from the public.

Micro-insurance refers to insurance products and services designed specifically for low-income individuals, often in developing countries. Micro-insurance aims to provide financial protection to people with limited resources against specific risks at an affordable cost.

To explore whether trust and knowledge gaps persist regarding insurance in the digital age, we conducted an online survey, receiving responses from just 30 individuals. Out of the respondents, only two reported having insurance policies. While the survey didn’t specify the type of insurance they held, these participants shared insights on the significance of insurance in their comments.

The first policyholder mentioned that she learned about insurance through word of mouth. Her primary reasons for joining were financial security and guaranteed compensation in uncertain situations. Additionally, she recommended that the government should educate the public about the advantages of insurance and introduce policies that are affordable for the average Ugandan.

The second policyholder shared that he learned about insurance through his workplace. Initially finding it challenging to grasp the concept, he suggested that the government should simplify the understanding of insurance, making it more accessible for people to relate to and comprehend easily.

Despite noticeable progress in the insurance sector, a significant number of individuals we approached lacked awareness of how insurance operates. The majority of respondents mentioned paying for third-party insurance, but many expressed skepticisms. They viewed it more as a government tax rather than insurance, as stories of refunds were scarce or non-existent. Car owners, in particular, perceived third-party insurance as resembling a government-imposed tax rather than a genuine insurance product.

In a recent interview, Jonan Kisakye, Chief Executive Officer of the Uganda Insurers Association (UIA), emphasised the critical need to dispel misconceptions about Motor Third-Party insurance. Many still wrongly perceive it as a tax, but Kisakye underscored the importance of clarifying this misunderstanding. Motor third-party insurance is mandatory for all private or commercial vehicles, excluding government-owned ones. It provides coverage for bodily risks involving third parties in accidents.

Godfrey Ddamba, a former policyholder, shared his encounter with insurance. He purchased comprehensive insurance for his car in 2012. In 2015, a fire at the garage where he parked his car led to its destruction. Ddamba collaborated with the insurance company’s survey, providing evidence through footage and photos of the incident.

Having paid 1.2 million Ugandan shillings annually for the insurance, Ddamba received an 80% payout, enabling him to purchase a new car swiftly. However, he discontinued the policy due to high premiums that became challenging to sustain.

Seeking insights from the community, we spoke to other members about their hesitancy to join insurance in the country.

“I don’t find it reasonable enough to spend money that I may never utilize. It’s time for insurance options that are reasonable and practical for every individual,” said Mr. Ssebunya Mark, a resident of Mengo.

Ms. Nanyonja Freda, a businesswoman, stated that the government must break down the complex concept of insurance, making it essential for people to relate to easily, and it should make the prices affordable for all. We also spoke to Brenda Kanyesigwe, who manages a savings group in Kampala, elaborating more on why most people prefer SACCOs for funds over insurance.

“I’ve witnessed the power of informal savings groups in providing a safety net for financial well-being. However, when it comes to insurance, there’s hesitancy. People might not readily join because the concept feels distant and complex compared to the simplicity of our savings circles. Insurance requires a shift in perspective. It’s not just about contributing to a fund; it’s about embracing broader financial security. The challenge lies in explaining insurance, making it relatable, affordable, and showcasing its value beyond our traditional means of support,” said Brenda Kanyesigwe.

The majority of Ugandans have embraced personalised savings and refund methods, often favouring small SACCOs and engaging in informal insurance. Through our interactions, it became evident that there is a pressing need for extensive outreach initiatives, including targeted training sessions and engagement with various groups, especially within the media class. Individuals emphasised the importance of educating people about the significance of insurance and its potential benefits.

According to a report by the Insurance Regulatory Authority titled “The Landscape of the Insurance Market in Uganda,” factors affecting insurance include negative perception and mistrust of the insurance industry by the public. Many view insurance as a gamble and a game of chances, with limited visibility into the actual benefits it can provide. The reluctance of insurers to pay claims further contributes to the negative perception, coupled with the ignorance of the insured.

Furthermore, FinScope (2018) revealed a dismal uptake of crop and livestock insurance, despite a significant portion of adults earning money from farming. Insurance coverage for trading goods stood at four percent, vehicle third party at six percent, motor comprehensive at seven percent, life insurance at 10 percent, and loan protection at 14 percent.

These percentages reflect the distribution among the one percent of the total population with formal insurance coverage in Uganda. Despite the low uptake of formal insurance products, Ugandan adults seek financial protection through informal means, such as community health schemes, burial societies, and community-based savings groups that offer assistance in times of need.

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