Changing insurance regulations have unfinished matters to solve

30Dec 2017
The Guardian
Changing insurance regulations have unfinished matters to solve

CHANGES are being felt in the way the country conducts insurance business and especially its often externalized aspect, reinsurance, as moves are being launched to localise those transactions.

Reports talk of issuance of Government Circular no 55 of 2017 which admits that externalizing reinsurance transactions is normal, but "in Tanzania" this has led to abuses, including closing out the market for other players who could partake of opportunity to offer such services. It notes more technically sound reasoning that habitual externalisation "retards the local insurance industry's capacity to handle  large and complex risks," this way.

As the risks are placed with entities (insurers) in other markets, "this denies the economy financial resources which could be invested locally," the reports assert, once more departing from sound technical reasoning to thinking about the benefits.

The question that constantly surfaces and is only partially tackled before issues of incomes and distribution of benefits crop up - and they singularly mar the picture of what reinsurance is all about, or ought to be - is how this may affect investments, trade, security of transactions.

It is not possible to say that the circular is guided solely by benefits and not efficiency, but a problem exists.

The Commissioner for Insurance Dr. Baghayo Saqware notably targets ending externalization of long term insurance business, which by definition relates to long term foreign investments, in which case they are supposed to be insured by locally registered firms.

What isn't evident is how far such a facility is a possible prerequisite for foreign investment itself, as the quality of local registration can only be evaluated against its total resources, as to the breadth of policy holders, businesses insuring one another.

How many among the large taxpayers can be effectively insured locally, and what could such a rule spell for investment stability?

There is a suggestion that part of long term risks be placed internally, which means sharing out such risks, but issues remain as to whether insurance is a matter of confidence (the way a patient sees a doctor, and even a customer choosing a product in a market) or regulation (reporting to a police station for example).

At the same time the framing of the circular may not have addressed core issues of how local insurance grows and attains higher capacities, and instead seems to believe that it should be 'given' large risks to handle, that is, learn on the job, as it were. If investors lack confidence in a local insurer, shall the state back up the risks?

It is also possible that the target of the circular is ensuring that more business is directed at the National Insurance Corporation (NIC), of which little has been heard for years, if not decades.

Yet for a technical parameter, seeking to grow the NIC by providing it with large risks to handle because it has the formal capacity rather than capacity acknowledged by the market is to enter a wedge between investment proper and insurance. As the NIC is state owned, in what manner will any claims against it be enforced by courts?

Reinsurance is a structural issue, for effective insurance, irrespective of its impact on income sharing in the industry. Income sharing is positive as a concern for policy makers but cannot override issues of effective insurance, in which case distortions in the insurance industry ought to be addressed first.

The issue is less the habit of reinsurance but doubts on capacities or enforceability of contracts in the local insurance sector. These questions are likely to have to be resolved in due course.

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