Tanzania's insurance scenario under scrutiny

Alliance Insurance Corporation Ltd�s Managing Director Ananth Krishnan . 

 (Photo: Prosper Makene)

By Prosper Makene

Insurance is a defensive measure used against future possible risks of the future. It is a legal contract that protects a person from contingent risk of losses through financial means and provides a means for individuals and societies to handle some of the risks faced in their daily life. However, a number of people in Tanzania do not understand the role of insurance that creates confidence and eliminates worries. Our Staff Writer PROSPER MAKENE interviewed Alliance Insurance Corporation Ltd’s Managing Director, Ananth Krishnan who provides reasons on why many people and property in the country are not insured. Excerpts…

QUESTION: Are you satisfied by the current rate of insurance penetration in Tanzania and how does it compare with other East African markets?

ANSWER: Insurance penetration in Tanzania is low both in the Non-Life and Life sectors. The reasons are many. Some of them could be attributed to culture, purchasing power, lack of incentives particularly in case of Life Insurance, lack of awareness etc. On the issue of penetration of insurance in Tanzania vis a vis other insurance markets in east Africa, Tanzania lies probably between Kenya and Uganda. Suffice to mention that Tanzania has the greater potential for growth of income.


Q: Why are so many people and property not insured?
A: As far as life insurance is concerned, meaningful tax incentives may serve as incentives for potential life insurance policyholders in the populace. In fact life insurance is almost a norm in many countries due to the tax rebates enjoyed by policyholders in gainful employment. There is already existing tax rebate but needs to be adjusted in tandem with the current economic realities.

As far as Under-Insurance and Non-Insurance of properties are concerned, it is more of universal phenomena. The percentage of under and Non Insurance is much higher in developing countries like Tanzania. It is worth mentioning that the Commissioner of Insurance has taken commendable steps also by involving all stake holders to dialogue on this area with the aim of enhancing the penetration level.

QUESTION: What is the level of fraud in the insurance industry?

ANSWER: Fraud and corruption are universal. Insurance is no exception. At Alliance and at industry level it requires constant combating. Level of fraud is indirectly proportional to effectiveness of system and controls in force in any organisation. But whatever you may do, fraud cannot be totally eliminated. Any area wherever one can find laxity, fraud creeps in. If one looks at the number of such instances obviously areas which has high incidence of claims like motor, has more susceptibility. Similarly if one is not careful one may lose out on high severity claims. Hence normally, the bigger the claims are, the more would be the checks and closer control.

Q: How is your organization addressing the problem and the impact on your company’s ability to settle claims?

A: Fraud could be in the form of exaggerated claims, illegitimate claims and even extend to other areas of operations. Internal checks and control, audit and above all integrity of our human resource are essential tools for addressing this problem. Sixty percent to 80 percent of premium which we receive is paid out as claims normally. So one can imagine the impact it can cause to our bottom line if we are not on top of this menace constantly. It is the team work where there is a great amount of input from our employees, our loss adjusters, broking and reinsurance partners.

Q: We gather there is a lot of under cutting of rates in the Tanzanian market. What is the root cause of that and how should the problem be addressed?

A: Under cutting of rates is a product or consequence of acute competition seen in a vibrant market. It should be noted that healthy competition is also important for free market mechanism to work. There is nothing wrong so long as risk is well priced and measured and a good level of information on the risk is available. A problem does arise where one does not learn from past experiences. Hence the solution lies in paving way for healthy competition and prudent underwriting of risks after acquiring the relevant underwriting information.

Q: Unlike banks, insurers in this country continue to confine their operations in cities and big towns. Why is this so?

A: Insurance is fairly different from banking. Insurance companies mostly rely on brokers, agents and other distributions channels to reach their customers whereas bankers have a direct interface with customers. Through agents and brokers distributed throughout the country, insurance companies are able to reach their customers. However, where volumes are high, it may be necessary for insurance companies to have a presence in other smaller towns. This has also to do with economies of scale.
Q: Can you outline your company’s strategy to go upcountry and cover more risks?

A: Our vision is to have a presence in all the regions of the country through agents and brokers. But here the biggest stumbling block is the availability and mobility of skilled labour. In Tanzania we lack trained insurance personnel and unless we have adequate skilled manpower, we may not be able to operate profitably by setting up regional offices or branches. A well skilled, quality and sustainable manpower is a long term solution to this problem. Going forward, emphasis may also be placed in the development and sophistication of IT. But I hasten to mention that the strength of and the quality of services offered by a company should not be solely measured by the number of branches it has but rather by the efficiency in its operations and the level of satisfaction afforded to its clients.

Q: What is the current state of pricing insurance services and to what extent has it impacted on limited insurance cover in the economy?

A: In my view, insurance service is a fairly different from services offered by other industries. Here we don’t know the cost of claims which is the substantial element of our revenue. Hence in any market you go, pricing and pricing related problems is an uphill task for insurers.

As already mentioned due to competition prices keep moving down but I think price alone can not enhance insurance penetration in the economy. A perceptible change is required in attitude, dependence in the family, community or society is taken for granted, awareness campaign, micro insurance, tax incentives etc can raise the level of insurance.

Q: What should the Tanzanian market expect from Alliance this year and what plans does it have on its drawing board?

A: This is an exciting time for Alliance in view of our underlying performance in the past many years. We will need to build on our past success to maintain our position in order to move towards a sustainable future and respond to the critical challenges placed on our path. We will strengthen our competitive position by focusing on the customers and optimising on cross selling opportunities to accelerate our growth strategy in order to stay true to our mission. Our customers have been and remain to be our number one priority.

We will make sure that we continue to focus relentlessly in providing quality products and service to our customers. 

SOURCE: THE GUARDIAN