Efforts on to Solve Somalia’s Peculiar Insurance Headache

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While the trend in insurance industry in most parts of the world is about mergers and acquisitions to grow and consolidate market share, in Somalia, the biggest headache is how to create a regulatory framework that will safeguard risk management.

As Takaful Insurance of Africa realised, the market has an enormous opportunity for growth, but it also has peculiar challenges that are not found in most other emerging markets. Takaful Insurance of Africa was the first to set shop in Somalia. Above all the risk factors it has encountered in running insurance business in Somalia, lack of relevant laws is the most glaring if not the major hindrance to the firm establishment and growth of the sector in the country.

For instance, while in most East African countries a motor insurance and in some cases a medical insurance is mandatory and enacted in law, in Somalia, there is no requirement that a motorist must have insurance. Many motorists drive without any stickers.

“An insurance law is the basic framework needed to guide the industry. It spells out key regulatory issues, including capital required, products approval, competition issues, composition of boards and other issues.This ideally should be the starting point for insurance business in Somalia,” observes Abbas Mohamed, a risk and Takaful insurance consultant.

For any player, the challenges facing the Somalia market can be daunting, if not intimidating. Takaful Insurance of Africa, however, decided to look at the bigger picture and address a glaring need for insurance cover in Somalia. “We decided to set-up and let the law follow us,” notes Mohamed, a young University of Nairobi-educated actuarial scientist, whose springy walk embodies the confidence of the company.

Takaful Insurance of Africa, which has its main office in Nairobi but also operates in Mogadishu, Hargeisa and Puntland, is now using its vast experience in the industry, and particularly in Islamic insurance, to work closely with the government in enacting legislations that will guide the industry. So far, the government has firmly embraced the need to set up legislation, not only for the insurance industry, but also for other sectors. The private sector in Somalia sees the progress as being slow, but rebuilding a country’s institution is sometimes a painfully slow process.

In most countries emerging from instability, the enthusiasm of the private sector always drives the economy. Somalia is no different. “We are at the last stages of enacting an insurance law, and that is very encouraging,” notes Mohamed. He sees the enactment of the law as the beginning of the renaissance of the insurance industry.

Takaful Insurance is not just playing a key role in creating a conductive environment for growth of the industry in Somalia. The company, as Mohamed observes, is pioneering a whole new culture of risk management. In developed and emerging insurance markets, a key catalyst for growth is a well-established culture of insurance that relies on individual’s knowledge of risk management and well-organised and structured businesses. “We are pioneering a risk management culture that had gone missing in Somalia for close to two decades.

It takes generations to create a culture of insurance and we are just building the steps,” says Mohamed, who also has a Master’s degree in statistics from the University of Nairobi and a post graduate diploma from the Institute of Islamic Banking and Insurance of London (IIBIL). Mohamed sees Takaful Insurance not just as a business, but as a partner in the rebuilding of Somalia. As part of building a risk management culture, the company has particularly been keen to transfer risk knowledge to clients.

This has involved creating awareness on good management of security in premises, careful employee scrutiny during employment, proper safety issues, and other key considerations. Bridging the gap Indeed, knowledge transfer is a critical need in the rebuilding of Somalia. In the absence of specialised training in some of these technical areas, private companies like Takaful Insurance play a big role in bridging the gap that is critical for sustainable development of the economy.

Besides instituting a legal framework and establishing an insurance uptake culture, Somalia, due to its long period of instability, also presents a set of other unique risks to any insurance company or individual companies planning to set base in the country. Although the country is gradually estabilishing and normalcy is fast returning to the capital, Mogadishu, business analyst see political risks, terrorism and business risks as key challenges for any insurance company in the country.

Political instability, due to frequent changes in government is a concern. Another is the weak institutionalisation of businesses where most enterprises lack proper accounting and documentation systems, making it hard to define risks and provide cover. “The Somalia situation is unique compared to those of most countries because the risks are sometimes severe and this creates a challenge to business. “There is tremendous improvement, but we still have challenges,” observes Mohamed. As the neatly suited Mohamed briskly walks out of our interview room, that same urgency is practically what Somalia needs to fully meet its potential. The laws must be in place to

meet the demand of the ever confident and growing private sector. From all indications, the private sector is ready to roar and the government should be ready to roar with it by enacting necessary legislation that would improve the business environment.