Insurers cry foul over unfair competition

Customers at a banking hall. PHOTO BY FAISWAL KASIRYE 

By  FARIDAH KULABAKO

Commercial banks are violating Bank of Uganda guidelines by forcing clients seeking for loans to insure the liability with insurance companies of the bank’s choice, the Daily Monitor has learnt.

This is contrary to BoU’s guidelines that require banks to provide a minimum of three insurance service providers to clients to enable them make their own choice as to which company should cover-up the loan risks.

Insurance companies this newspaper talked to say the practice has created unfair competition in the insurance industry and constrains their loan protection premiums.

“Some insurance companies that provide insurance services to banks collude to ring-fence all customers taking loans and take all the business instead of allowing a customer to make their own choice which is not good for the industry,” an insurance industry player who asked not to be named said.


However, a source in one of the leading banks who also asked not to be named because they are not authorised to speak on behalf of the institution, said banks do it to ensure that the liability is taken up by a stable insurer with good financial records and history.

“A few banks give their clients an option of making their own choice but others dictate because it’s in their interest to work with insurance companies whose stability is assured and can ably take the liability instead of taking chances with a choice of the customer,” a source said.

However, the chief executive officer of Insurance Regulatory Authority (IRA), Mr Ibrahim Kadunabbi Lubega, said the act is so unbecoming of insurers and banks that are doing it, adding that all licensed insurance companies have the capacity to insure any kind of risk in the market.

“That act is so wrong. Some insurance companies have lodged complaints with us but BoU said it is being addressed,” Mr Kadunabbi said in an interview early this week.


By press time, there was no response from BoU, the regulator of commercial banks.

However, Mr Philip Odera, the chairman of Uganda Bankers’ Association, dismissed the reports saying banks are audited annually by both BoU and external auditors to ensure that all players comply with all guidelines and policies.

“It is not true that banks collude with some insurers to ring-fence customers. You cannot put all your business with one company. It is open,” Mr Odera said in a telephone interview yesterday.
Loan protection premiums contribute substantially to revenues of insurance companies.

Insurance & Banking

Slow growth: High commercial bank lending rates witnessed in 2012 reduced private sector borrowing, resulting into a reduction in loans protection premiums, slowing down growth in the insurance industry to 18.48 per cent, although it had been projected to grow at 20 per cent.
The numbers: There are about 25 players in Uganda’s banking industry and 21 insurance companies.

fkulabako@ug.nationmedia.com