Tanzania: High management costs eat into insurance profits

A recent actuarial study commissioned by the Association of Tanzania Insurers has shed light on the challenges facing the insurance industry in the country. According to Nilufar Manalla, Managing Director at Cizass Insurance Agency, the industry has seen a growth of about 10-11% between 2020-2021, with non-life insurance driving this expansion. Manalla mentioned that general insurance currently holds a significant share of the market at 37%. However, despite this growth, the industry is facing issues that are impacting profitability. High management costs and fraud are two key factors that are eating into insurance company profits. Management costs, which include commissions paid and overall operational expenses, play a significant role in determining a company's profitability. In Tanzania, insurers often end up paying higher commissions than regulated, leading to increased costs and reduced profits. Manalla emphasized the importance of regulatory compliance in controlling management costs and improving profit margins. She suggested that insurers need to adhere to the guidelines set by the regulator to achieve profitability levels similar to those seen in neighboring countries like Kenya and Uganda. Fraud is another major concern for the insurance industry in Tanzania. Manalla highlighted cases where policyholders have attempted to claim amounts far exceeding the actual value of their losses. From property insurance to motor insurance, instances of fraud are widespread in the market. While some cases are detected by diligent insurers and investigators, there are still instances where fraud goes undetected. The lack of a centralized system to verify claims documentation contributes to the challenges faced by insurers in combating fraud. When it comes to regulatory oversight, Manalla acknowledged the need for stricter capital requirements to protect the industry. With a significant number of insurance companies operating below sustainable market share levels, she believes that consolidating the market to include fewer insurers of higher quality would be beneficial. By enforcing stringent capital adequacy ratios, the regulator could ensure the stability and resilience of the insurance sector in Tanzania. Overall, addressing the issues of high management costs and fraud will be crucial for the long-term sustainability and growth of the insurance industry in the country.