A PREMIUM OPPORTUNITY

Tanzania 2014 | FINANCE | REVIEW: INSURANCE

Though still a work in progress, the insurance business has the potential to instill a culture of saving and raise funds for Tanzania's wider economy. First things first, micro is the word.

Today, just 32% of Tanzania's population is urbanized, yet its Development Vision 2025 foresees a transformation to a semi-industrial, middle-income economy. Tanzania's slender, but growing insurance sector, much like its stock exchange, is geared toward generating a pool of capital that can be channeled into the long-term investments in national infrastructure that are conducive to an economy set to grow on the back of natural resources. The insurance market has in fact experienced steady growth over the past decade, according to the National Insurance Board (NIB), having registered a 300% appreciation in gross premiums written from $21.4 million in 1997 to $71.7 million in 2012, the latter marking an 18% year-on-year rise. Tanzania has an average annual market growth rate of 20%, and gross premium penetration as a percentage of GDP remains at 1% in 2013, having risen modestly from 0.82% in 2012.

UNDER-PENETRATION SPELLS POTENTIAL

The insurance watchdog Tanzania Insurance Regulatory Authority (TIRA) identifies sector growth of 24% in 2012, with an estimated premium market of $248.3 million. Coming from a low base, Tanzania was relatively untouched by the global financial crisis, with GDP actually up by 7% annually in the 2001-2010 period. Moreover, rising investment in infrastructure, particularly healthcare-related infrastructure, and the ascent of a new middle class will have a knock-on effect on the insurance business, which registered a CAGR of 17.5% from 2008-2012.

Yet, the Tanzanian insurance industry penetration rate (measured as gross written premium as a percentage of GDP) rose modestly from 0.77% in 2008 to 0.82% in 2012. According to data from Timetric, Tanzania remained below both the 3.9% African average, and the levels of Kenya and Ghana, which had respective penetration rates of 3.2% and 1.8%. This low level underlines the sector's growth potential, which will be pursued through greater awareness, decreasing poverty, and stable economic performance underpinned by Tanzania's soon to be exploited resources.

PREMIUMS OF LIBERALIZATION

From 1967 until its liberalization in 1998, the insurance sector in Tanzania had been a state-run duopoly of the National Insurance Corporation (NIC) on the mainland, and the Zanzibar Insurance Corporation (ZIC). Liberalization intended for insurance to have the two catalytic effects of fostering a national culture of saving, and of generating a revenue pool for investment in the broader economy. It was also foreseen as a necessary rung on the ladder of standardization and operational professionalism in the financial sector. Part of Tanzania's promotion of its insurance sector is its Annual Insurance Day. At the 16th such event held in Dar es Salaam in September 2013, Peter Ilomo, Chairman of the National Insurance Board (NIB), described Tanzania's insurance landscape. According to this speech, the sector today comprises 28 insurance companies, a reinsurance firm, 84 insurance brokers, 453 insurance agents, and 33 loss assessors and adjusters. Deputy Minister of Finance Janet Zebedayo Mbene was quoted as saying that “in addition to its core function of helping corporates and households manage risk, the role of the insurance sector in economic growth is moreover complementary to that of banks and non financial institutions in many respects." And like banking and the capital markets, the sector is set to benefit from stronger macro performance in the years to come, and in the immediate term, by the regulatory environment.

REGULATING THE GAME

In fact, the Insurance Act of 2009 took a confident stride toward tightening up the regulatory environment. One key stipulation that raised public confidence in the system was that all legitimate claims be settled within a 45-day period. This confirms a commitment to developing a consumer oriented business. As well as being mandated to promote public awareness, TIRA has the critical role of registering insurance agents, brokers and companies, and evaluating their regulatory compliance. According to Israel Kamuzora, Commissioner of Insurance at TIRA, “the insurance industry normally grows in four stages," (dormancy, early stage, increased growth stage, and maturity). “We are now in the increased growth stage. Over the next 10 years, I think we will reach the maturity stage, and we need to do so because insurance in Africa is a vehicle that will help governments and countries deal with the issue of poverty."

MICRO INSURANCE, MACRO THINKING

As with micro financing, micro insurance is aimed at taking baby steps toward reducing abject poverty, especially in rural areas, and in engaging more of the population in the financial system. The success of mobile money schemes to date in several countries with impoverished populations stems from its simple logic of providing rudimentary financial services to the unbanked. The scheme has now been extended into the sphere of mobile insurance for the same demographic. Founded in 2002 and backed since 2007 by a grant from the Bill & Melinda Gates Foundation, MicroEnsure is a platform that provides coverage to 4 million people around the world. It has 2 million clients in Africa, served through subsidiaries in Kenya, Ghana, and Tanzania. In an innovative venture, MicroEnsure has partnered mobile company Tigo to extend its mobile insurance model to Tanzania in the form of Tigo Bima, the country's first mobile insurance product. With the scheme, Tigo subscribers for a minimum usage receive free coverage, which expands the more they use their phones. In a similar vein, Julius Mugabe, Corporate Manager at African Life Assurance Tanzania, told TBY about the company's prospective mobile offering. “We are at the pilot stage with this. This area is particularly exciting, because mobile penetration in Tanzania is at 25 million out of a population of 40 million." Meanwhile, on the subject of leveraging existing resources to spread the reach of insurance Israel Kamuzora stated that, “we are also trying to introduce bancassurance. Banks in Tanzania have many outlets, and we want to use the bank channel to reach out to more people." Indeed, among the responsibilities of the insurance watchdog is collaboration with the Bank of Tanzania in exploring the future of bancassurance, as well as the potential for training of a professional industry workforce to accommodate the sector of tomorrow. In response to a common problem in several African nations, the African Trade Insurance Agency (ATI) was established in 2001 under the aegis of the World Bank. To date, it has enabled trade valued at over $2.5 billion and has supported investments across Africa. The ATI is also active in Benin, Malawi, Burundi, Rwanda, the Democratic Republic of Congo, Kenya, Uganda, Madagascar, and Zambia. The ATI defines its mission as, “transforming African risk into opportunity by providing insurance and financial products, in partnership with the private and public sectors." By way of an example, a Tanzanian sugar plantation in need of an irrigation system a 5.6 million deal was insured by the Italian Export Credit Agency in association with its reinsurance partner ATI.