Fraud and high operational costs eat into insurers’ profits

By Gadiosa Lamtey

Dar es Salaam. High administrative costs and fraud are eating away at insurance companies‘ profits, The Citizen has learned.
For an insurance company to make a profit, its gross written premium must be greater than its management expenses and claims.
Insurance company management fees include operating costs as well as commissions paid to intermediaries, while claims are the formal demands people make to their insurer for reimbursement of losses covered by the insurance policy. assurance.
Data provided by industry players shows that the claims and management expense ratio is higher in Tanzania than in Uganda and Kenya. For example, in Tanzania, the management costs amount to 46% while the loss ratio is 54%, making a total of 100%.
In Uganda and Kenya, the management costs are 52 and 32% respectively, while the loss ratio is 42% and 62%, respectively. The totals for each country add up to 94%, leaving a profit margin of 6%.
“To make a profit, you have to stay with a balance after deducting management fees and claims. Analyzing Tanzania you get 100% for both while in Uganda and Kenya they stay with a balance of 6% leading them to profitability,” revealed the President of the Association of Tanzania Insures (ATI), Khamis Suleiman, at The Citizen.
He said that based on the data, an actuarial analysis was conducted and offered advice that players in the insurance industry in Tanzania should find ways to reduce the claims and expense ratio to increase profitability.
About the fraud he said: “A person can claim 3 billion shillings but after an assessment you find out that the actual amount to be paid is only 500 million shillings. Therefore, if officials are not enthusiastic enough, it could reduce profits,” he said. He further noted that Tira has set caps on the amount companies are required to pay brokers and bancassurance agents accordingly.
Tira was also working with insurers with the aim of introducing a digital system that would allow the sharing of information between players to reduce fraud.
Insurance Commissioner Baghayo Saqware said efforts were underway to contain the fraud, adding that there was currently no system to link all companies so they could monitor people who submit false documents.
“In the meantime, we are calling on the public to report to us if anyone submits false documents to claim payment from insurance companies,” Prof Saqware said.
UAP Insurance claims manager Michel Emmanuel said the auto insurance portfolio was a major contributor to industry underwriting income, but also happens to be the class that leads claims booked in industry.
Mr. Emmanuel said an online portal, TiraA Mis, the only one of its kind in East Africa that has gone a long way in minimizing if not eradicating instances where the public has been sold fake hoods/stickers/engine tokens, compliance with minimum standards premium rates have been abused through undercutting and inadvertent collection of premiums.
“This portal has breathed life into the motor vehicle book of insurance companies; year-on-year growth in unpaid premiums,” he said.

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