How Tanzania can save billions of shillings with inclusive insurance

Dar es Salaam. Tanzania’s economy can save hundreds of billions of shillings in the aftermath of natural disasters if it adopts inclusive insurance, a new study has shown.

The research details how the country is putting itself on the losing end by implementing indemnity policies that do not match with the needs of the poorest.

The study by the Institute of Finance Management (IFM), commissioned by the Tanzania Insurance Regulatory Authority (Tira) and financed by the United Nations Development Programme (UNDP), has revealed that most of the available insurance products do not respond to the needs and aspirations of rural communities.

As a result, when disasters strike, the government spends billions of shillings in an attempt to bring people’s economic lives to normalcy.

The Diagnostic Report on Inclusive Insurance and Risk Financing in Tanzania says, for instance, that for the past five years, the government spent over Sh50 billion in response to disasters caused by floods alone.

“We therefore have an urgent need of reforming the policy and bringing about a coordinated approach that supports the Public Private Partnership (PPP) in such a way that we bring on board telecommunication firms, banks and microfinance institutions in the delivery of insurance products,” said an assistant lecturer at IFM, Mr Frank Patrick, when delivering the findings.

He said the insurance industry was currently doing well, but there were legal and policy gaps that needed to be reformed to reach more people, especially in rural areas.

This would help to address the scenario whereby insurance companies are mostly located in urban centres.

According to the study, many products designed by companies do not respond to the needs of low-income earners, citing at what happened last year when many livestock keepers suffered huge losses due to drought.

Mr Patrick said 85 percent of Tanzanians were not insured. Therefore, the provision of insurance services through partner-centric business models was highly recommended to reach the informal sector with affordable insurance products.

This, the study says, means that insurance companies need to partner with telecom companies and microfinance institutions to deliver services to the people.

“We suggested that companies need to take advantage of both the blue economy and the green one, which already have bonds. If companies are well ventured into capital markets they can come up with alternatives that can help insure against disasters that currently require the government’s intervention,” he said.

Currently, Tanzanians turn to the government whenever disasters occur. In some cases, the government is compelled to seek the assistance of development partners.

“We also recommend that to enhance insurance uptake, companies should take advantage of banks’ infrastructure and customer base – under applicable laws and regulations – and be allowed to use customer information consisting of certain personal and demographic data possessed by banks to develop new products and refine marketing strategies to fit their needs. They could also conduct their own telemarketing or direct mail activities,” Mr Frank said.

Speaking at the report’s launch, the Commissioner of Insurance, Dr Baghayo Saqware, said the findings had come at the right time when the authorities were implementing a ten-year plan that aims to increase insurance penetration by 50 percent by 2030.

Dr Saqware said the government had set targets that would enhance the increase in insurance uptake, including expanding penetration by introducing more distribution channels.

“Last month, the government endorsed the four mandatory insurance plans through the Finance Act, 2022. This will help a lot in improving the sub-sector and spreading services to more people,” he said.

A livestock keeper, Mr Magombe Makoye, said the biggest challenge was that insurance firmns consider pastoralists and farmers as people who have no money, and therefore cannot afford insurance cover.

“Many pastoralists have a lot of animals, and in the event of a drought like last year’s they incur huge losses. If we really want to embrace inclusive insurance, we have to change the misconception and instead educate them,” he said.

Data from the Ministry of Livestock and Fisheries Development shows that Tanzania is home to 35.3 million cattle, 25.6 million goats and 8.8 million sheep.

This, according to Mr Makoye, means there is huge potential for the insurance market and its value chain.

“People need education to go for insurance cover. They also need early warning so they know what to do with their livestock instead of waiting for disasters to happen,” he said.