Insurance players in Rwanda are calling for a review of the insurance law to allow local banks to venture into bancassurance.
Insurance players in Rwanda are calling for a review of the insurance law to allow local banks to venture into bancassurance in a bid to deepen insurance penetration and boost earnings for the lenders.
Bancassurance involves insurance companies selling their products to the banks’ clients using the lenders’ outlets.
Analysts say when banks start bancassurance services, Rwanda’s insurance penetration rate, which has stagnated at 1.5 per cent for the past three years, could more than double.
Amendments
In Kenya and Tanzania, the model has helped banks spread risks, earn additional fees and increase returns on assets.
The Ugandan parliament recently passed amendments to the Financial Institutions Act of 2004 to allow banks to provide bancassurance services.
Deloitte’s East Africa Insurance Outlook 2015 points out that Kenyan lenders were forced by narrowing interest rate spreads. The outlook projects an increased interest in bancassurance partnerships as an alternative revenue source.
The three Kenyan lenders with subsidiaries in Rwanda — KCB, Equity Bank and I&M Bank — would have replicated the services but there is no supporting law.
“We will be looking to offer bancassurance when the law is amended to allow this as it is in other countries,” said Maurice Toroitich, managing director of KCB Rwanda.
Starting a brokerage firm has cost implications including a fully fledged subsidiary with staff and capital, which shareholders in Rwanda banks are avoiding due to low returns on investment.
On average, according to National Bank of Rwanda the return on investment in Rwanda is 11.2 per cent compared with the 20 per cent regional average.
“Our understanding of bancassurance is where a bank directly sells insurance products underwritten by an insurance company, principally as an agent. In this case, there is no need to spend capital to set up a brokerage firm,” said Mr Toroitich.
For almost a decade that the insurance law has been in place, only the Development Bank of Rwanda has been offering insurance brokerage services.
But recently, Bank of Kigali was licensed by the National Bank of Rwanda to run a full-fledged traditional short-term general insurance business.
Bank of Kigali invested $4.6 million in its BK General Insurance Ltd to compete with eight other non-life insurers.
The low insurance penetration rate is an opportunity that investors can exploit to become market leaders in insurance businesses which has remained strong posting profits.
The insurance sector in Rwanda registered sufficient liquidity as evidenced by its liquidity ratio of 355 per cent which is well above the minimum prudential benchmark of 150 per cent.
But there is growing competition with the entry of Kenyan subsidiaries including Phoenix Assurance Company, a subsidiary of Phoenix Assurance Group, UAP Insurance Rwanda Ltd owned by UAP Holdings Ltd, a financial services group listed in Kenya coming in Rwanda.