Tanzania: Radical Changes Loom in Insurance Industry

Dec 14, 2017 | The Citizen; All Africa

The Tanzania Insurance Regulatory Authority (Tira) yesterday issued a new circular detailing sweeping changes in the insurance business in the country.

The circular, issued by Commissioner for Insurance Baghayo Saqware, specifically seeks to address market challenges resulting from externalisation of insurance business outside the country through a practice known as reinsurance. It particularly prohibits the externalisation of long-term insurance business in the country, while also placing some limits on the size of short-term insurance business that could be externalised. "No long term business written in Tanzania shall be externalized; Long term insurers shall endeavour to place locally all long term business written in the country through reinsurance with locally registered reinsurers, co-insurance with other insurers transacting similar classes of business, insurance pools or such similar arrangements," reads a statement in the circular, which is expected to come into effect on January 1, 2018. The changes highlighted in Circular No. 55/2017 are also intended to raise the contribution of the insurance sector to the national economy. Externalisation of insurance risks is a practice whereby insurance companies decide to share the risk of insuring an entity with foreign reinsurers and reinsurance brokers. While noting that externalisation of insurance risks is a normal business practice in the insurance industry, the circular says that the practice has been largely abused in Tanzania, resulting in a number of drawbacks. "With abuse, the practice denies other participants within the market with opportunities to enhance their incomes and market share due to non-involvement in the risks," says Dr Saqware. It also retards the local insurance industry's technical capacity to handle large and complex risks, which are placed with entities in other markets thus denying the local economy financial resources which could be invested locally. Dr Saqware said the circular was a result of consultations with insurance stakeholders in and outside Tanzania, adding that it was a response to such abuses as 100 per cent externalisation (fronting) of risks which could be partly retained locally. Some players have also been reportedly fronting extremely low value risks with low sums insured, resulting in low premiums payable and low premium levy to Tira. Read more on All Africa. Source: All Africa