Tanzania–Country focus

Tanzania is open for (oil) business Marine, engineering and fire risks are some of the fastest growing in Tanzania as the country enters a crucial stage of gas production that is expected to have a positive impact on insurance growth in the country. The most recent data by the Tanzania Insurance Regulatory Authority (TIRA) for 2012 indicates that demand for marine insurance grew 52%, engineering insurance by 45% and fire insurance rose 27%. Amani Tuntufye, Senior Underwriter at Tanzania National Reinsurance Corporation, added that other prominent risks include property damage, terrorism, floods and pandemic diseases.hide“Like in many African countries, there is also political risk especially relating to abrupt changes in laws and policies. But there have been improvements in several countries now including Tanzania where governments have become more predictable,” he said. He added that the existing capacity to underwrite risks like terrorism and political is inadequate and the country has to depend on foreign companies. “Even though bodies like Africa Trade Insurance (ATI) agency exist, not many people are aware of their existence. There is a need for more public education to know exactly how insurers and businesses can benefit from ATI,” he said. Risk managers like Jacinta Karita, Group Managing Director at FirstRe, see risks in Tanzania being similar to those in the rest of the East Africa Community (EAC) region. “Risks are the same across the region because of the uninformed way of doing business,” she said. She sees demand for insurance in Tanzania being driven by the emerging sectors like mining which includes gas exploration and production, the same activities that are expected to drive demand for insurance in countries like Kenya and Uganda where mining and oil exploration are ongoing. Also like the rest of the region, construction is booming for commercial and residential property driven by growing economy, at an average annual rate of seven per cent, and rising incomes enabling more people to afford homes. Ms Karita said disaster management is a major risk facing enterprises in Tanzania and the local capacity to insure it is lacking. “Local expertise for some complex insurance needs is not available just like in many other African countries and there is dependence on foreigners,” she said. Tusekile Kibonde, Resident Underwriter for Tanzania for Africa Trade Insurance (ATI), said since 2012, Tanzania has prioritised projects in the energy and infrastructure sectors and that the two sectors form the agency’s main portfolio. “They constitute more than 50% of our portfolio. Other major sectors that we cover include manufacturing and banking,” she said. For credit risk, ATI’s capacity in Tanzania can cover up to US$84.5m. For political risks, it can cover up to $169m. “Beyond these values, we reinsure with our partners,” said Ms Kibonde. “Ideally, ATI is able to offer credit risk insurance up to $5m per project. We are able to reinsure an additional $45m with our partners. For political risks, we can do up to $10m per project and beyond this, we can reinsure an additional $90m,” she added. Resource curse It is estimated that the country’s recoverable gas deposits are more than 40 trillion cubic feet. The country has already taken measures to avoid resource curse disease that could result in civil conflict. Tanzania became compliant under the Extractive Industries Transparency Initiative (EITI) in December 2012, reducing the scope for misuse of oil and gas revenues. Tanzania, alongside Kenya and Rwanda, is receiving support on how to negotiate and structure natural resource contracts from the African Legal Support Facility (ALSF) in a broader effort meant to manage public expectations and avoid resource curse phenomenon, according to Stephen Karangizi, Director and Chief Executive Officer of the ALSF. But according to Maplecroft’s Country Risk Report for Tanzania released mid-last year, oil and gas companies will continue to face high corruption risks, with the problem remaining endemic within Tanzania’s bureaucracy and society. The report also noted that Tanzania is facing growing political and religious tensions, fuelled by very high levels of youth unemployment. The report forecasts that societal unrest is likely to grow in the long term, which could pose operational and security risks to oil and gas investors. Another risk report from the Coface Group noted that relations with Zanzibar are expected to be less tense due to the agreement signed at the end of 2012 allowing the archipelago to control the surrounding gas reserves and to grant exploration licences. There has also been a growing threat from Muslim radicals under a group known as Uamsho in Kiswahili (or ‘awakening’) that has been inciting violence, especially in Zanzibar. The most recent Kenya police report said Muslim preachers from Tanzania are involved in radicalisation efforts in Kenya’s coastal city of Mombasa. Tanzania has a Muslim population estimated at 35% while Kenya’s Muslim population is estimated at 11%. Elections Tanzania is facing twin political issues of the ongoing constitutional review and the national elections planned for 2015. The most recent draft released in December by Tanzania’s Constitutional Review Committee proposes a three-tiered government with separate administrations for the mainland and Zanzibar and an umbrella unity government. Unlike neighbouring Kenya, elections in Tanzania are generally peaceful. But calls for total autonomy of Zanzibar may ignite violence, which aided by the growing radicalisation of the Muslim youth in the Archipelago, could increase political risk. President Jakaya Kikwete recently blamed the opposition parties for inciting the youth to violence across the country as political emotions boil ahead of the constitutional review process and next year’s elections. “There is a limit to tolerance. Party members will not continue taking a low profile while members of the opposition parties continue to preach the politics of violence,” said President Kikwete. Local content Israel Kamuzora, Commissioner of Insurance in Tanzania, said lack of adequate capacity by local insurers will not be an inhibitor to taking emerging opportunities as the country is working on a policy to ensure that oil and gas insurance business pass through local insurance companies. “The local insurers may not have the capacity to take these huge risks but they can act as agents and therefore earn some commission. This is one way of creating capacity for local insurers and expanding their role in economic growth,” he said. Across east Africa, the insurance regulators are pursuing the idea of creating an oil and gas insurance pool. The pool will not retain risks but will act as an agency. But growth for the insurance industry is also being driven by consumer demand. According to Mr Kamuzora, premiums have been growing at an average of 20% in the past decade. Competition has also increased among the companies as their number has grown from less than 20 a decade ago to the current 30. “We have embarked on a national public education strategy meant to explain to people what are the benefits of insurance and also create confidence about insurance among our people. We are finalising developing regulations on micro insurance,” said Mr Kamuzora. “We are also about to establish the office of insurance ombudsman to facilitate faster and less costly dispute resolution processes to prevent disputants from going through the expensive and tedious court system,” he added. There is also a proposal to make it compulsory for every Tanzanian to have health insurance, said Dr Seif Rashid, Minister of Health and Social Welfare. “Our economy cannot allow us to give our people free health services, the only reliable means here is to make sure that people get access to health insurance. We want the National Health Insurance Fund to carry out research that will enable the ministry to introduce a compulsory health insurance law,” he said. The country is currently engaged in the formulation of a national insurance policy with the assistance of the World Bank. The policy is expected to come up with suggestions on how the country will deepen penetration. Currently, only about 19% of Tanzanians are covered by any form of insurance. In 2012, TIRA conducted a diagnostic study on the insurance industry. Among the prominent findings was that the lack of microinsurance law and regulatory framework is slowing progress of the industry as it locks out low income earners from buying insurance. “There is a lack of insurance products designed with the poor people in mind. Insurance for the poor needs to be widely inclusive with few exclusions and premium rates based on mutualism,” said Mr Kamuzora. The other finding was that insurance policies in Tanzania are not designed with straightforward conditions and then there is a lack of alternative channels of selling insurance which would guarantee that micro-insurance products reach low income people. Performance 2012 The most recent data by TIRA for 2012 shows that the insurance market in Tanzania grew by 18% in gross premiums written compared to the previous year’s performance. The industry’s contribution to the gross domestic product increased to 0.92%, compared to a contribution of 0.89% in 2011. General insurance business showed a growth of 17.7% in gross premium income while life assurance business volume increased by 20.4%. Motor insurance business took the biggest share of general insurance at 32% followed by fire at 20%, health at 17% and accident at 12%. Life assurance, on the other hand, was dominated by group life class at 65%, followed by individual life at 30%. The insurers recorded a combined loss ratio of 107% in 2012. “The underwriting result has consistently deteriorated over the last three years, suggesting a need for insurers to improve their underwriting practices, including considering reviewing the applicable premium rates not only in motor but all classes of general insurance,” noted the TIRA report. KPMG’s insurance report for 2012 concludes that rising competition has created an environment where premium rates are uneconomic, risk inceptions are insufficient, underwriting is inadequate and policy wordings are widely inappropriate. The TIRA report identifies key challenges being the absence of a national policy on insurance, premium rate undercutting, poor claims servicing practices by some insurers, shortage of insurance professionals in the industry especially in certain key disciplines including actuarial science, lack of local training institutions which offer relevant qualifications, and a delay in adoption of banc assurance as an alternative distribution channel for insurance services. Africa provides template Seeing the successes and failures elsewhere in the continent is helping Tanzania as it opens up for business, particularly as an oil boom looms, as Liz Booth heard. Learning lessons from other African countries is helping Tanzania develop its potential, according to Calisto Ogaye, of Continental Re. Mr Ogaye, who is Managing Director (Nairobi subsidiary) of the pan African reinsurer, said that Tanzania has been looking at other countries to build up its regulatory framework. Some of the local content legislation, for example, closely mirrors the rules in Nigeria where such legislation has been working well. So insurance companies need to approach local players and only when that capacity is exhausted are they able to access overseas markets. Tanzania, he said, is a fast-growing market and is becoming a stronger regional player in terms of insurance. A number of South African companies operate in Tanzania and more are expected to open branches in the country. Mr Ogaye explained: “Historically, Tanzania was disadvantaged for a long time because it was a closed shop with the government owning all businesses. In the 1990s the market was opened up for the first time so it is still a relatively new open market economy. From the 1990s when there was one government-owned insurer, there are now almost 25 insurance players, of which four or five are locally owned.” He added: “It is a vibrant market. The main issue is how to harness the opportunities there without stepping on the toes of the local interests.” It is also a highly competitive environment for insurance, with so many players competing for a relatively small insured pot. Mr Ogaye points to South Africa where the value of premium is some ten times greater but the number of insurers is much the same. “The top five insurers have about 70% of the gross written premium in Tanzania,” he said, “leaving the others to compete for about 30% of the pot.” The development of oil may well bring change and it will certainly bring opportunity, according to Mr Ogaye, who expects rapidly increasing interest from overseas investors. He believes there will be a real opportunity for development across the country. Like many other African countries, power supply will be critical as projects develop and that remains one of the greatest risks for any investor. Christian Ramamonjiarisoa, a Director at reinsurance brokerage Afro-Asian Insurance Services, agrees that there are plenty of large projects in Tanzania which will need plenty of insurance and reinsurance capacity. “We focus on treaty reinsurance and have a lot of success doing that. But one of the things that we make sure of is that we review all the insurance programmes in detail. We want to see the risk management thinking behind these projects before we will place the business. “If we can see strong risk management programmes, it will help us take the risk to the underwriters.” As a specialist in non-traditional risks, Afro-Asian has seen an increase in demand for certain products such as political violence and terrorism covers, particularly in the wake of the attack on the Westgate shopping mall in Nairobi last year. As markets mature, and particularly in the wake of the oil discoveries, demand for more complex insurances is increasing, said Mr Ramamonjiarisoa. “Tanzania is a fast-growing market and there is a lot of new demand for cover such as liability covers. They want directors & officers cover and they also want things like kidnap and ransom.” One of the other major threats to any project is what Mr Ogaye terms ‘moral hazard’. He admits the region has a major problem with white collar crime for more on financial crime in Africa) and in some ways Tanzania is worse than Kenya in terms of financial fraud. The increasing amount of white collar crime is seen as a major risk, particularly as much of it appears to stem from management levels. Bankers’ blanket cover is available, along with some fidelity covers, to protect business. Mr Ogaye also believes it is better to work from within and offer the cover. “You can’t afford to say you are not offering this cover just because you know there is a problem. It is better to be there in the market and try to manage the risk.” As Mr Ramamonjiarisoa added: “The challenge is not so much in terms of capacity for these special insurances because the market can handle those but more in terms of having the experts who know how to properly write these covers. “You need someone who understands the risks properly and who can devise the right insurance product to match the market. For me, the challenge is not about the capacity, it is about the products.”

Tanzania–Country focus

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