Insurance: How the informal Sector can improve premium income

More than 90 per cent of the informal sector does not have insurance to protect their trade against any form of risk.

For two days in Kigali, financial institutions from the region are meeting to deliberate how they can tap into the uninsured.

According to Gaudens Kanamugire, the chair of Association of Insurers of Rwanda, the reason that the informal sector is not a target for insurance companies, is because there is wrong mindset that this sector is not profitable.

“The informal sector segment has been ignored due to many factors, some believe that they have irregular income, some others believe that they are not organized such that the insurance companies have been targeting the formal sector and ignored the informal sector,” he said on the sidelines of the meeting that started on Tuesday.

However, Kanamugire said that the informal sector constitutes a large big segment and presents opportunity if it gets attention.

“Most insurers focus on corporate entities and well-to-do individuals but the room for growth is in the informal sector

“I can affirm that successful insurers of tomorrow are the ones that are able to design products that address the needs of the informal sector, products that reach them cost effectively,” Kanamugire added

Peace Uwase Masozera, the Director General of Financial Stability at the National Bank of Rwanda (BNR) acknowledges that there are challenges that have affected the penetration rates.

These, she said, include an enabling environment in regulation and insufficient consumer education. Uwase added that the Central Bank is working to address these issues.

“We are working on ways to have proportionate regulation that enables micro insurance to actually take off,” she said.

Uwase pointed out that over 70 per cent of Rwandan population is engaged in agriculture, there is need to ensure that the sector is insured to make it function properly for the advantage of the rural population that is actually involved but also generally the economy as a whole.

“There is the issue of consumer education and that is crosscutting as it affects us as the regulator, affects insurance practitioners so we need to join forces together so that we promote understanding and awareness of insurance products on the market,” Uwase noted.

Insurance penetration is still at 2 per cent in Rwanda. However, the low penetration is not unique to Rwanda. In Uganda, it is at 6.7 per cent, 6 per cent in Kenya, 3.9 percent in Tanzania, 1.2 in Burundi and 1.2 per cent in Sudan.

According to Waringa Kibe, the country director of Access to Finance Rwanda (AFR), insurance is a key part of the financial sector but there are still challenges in terms of skills and reluctance of providers because the model is designed in a way it is not tailored to the needs of the lower incomes and stressed to need to revisit their working system.

“We really hope that the financial sector will speak to the need of the lower income development because there is an opportunity, the penetration is low and this simply means there is a big opportunity,” Kibe said.

Bringing together over 100 financial experts, the 4th Eastern and Southern and Southern regional Conference was organised by Access to Finance Rwanda and its Partners namely Munich Re Foundation and Rwanda Insurers Association (ASSAR) among others.