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By Moses Kaketo

There is new trend in Uganda – business giants of yesterday are crumbling. The worst part is that some of these have board members, are audited by “big four firms” and have ‘vibrant’ internal audit departments. Are these structures just for window dressing or to ensure effective strategy, execution, risk management and going concern?

First on the spot light was Uganda Clays, Uganda Telecom (UTL) and others corporations who by now should be earning money and contributing to the consolidated fund, but continue to drain the poor tax payer.

One such corporation on the verge of a sudden disappearance is the National Insurance Corporation (NIC) now NIC holdings limited, stagnating.

Gone are the days when insurance in Uganda was all about NIC. They were so a dominant player that insurance students knew only of only one company: NIC. Not anymore. According to the 2013 Insurance Regulatory Authority market report, NIC was demoted to 12th position in non-life business and ranked 7th in life business. The rate at which NIC is losing market share is worrying.

After the exit of government of Uganda as single shareholder, a lot of premiums previously written from government are said to have been lost; which affected the company’s income.

This trend is expected to continue. The challenge with insurance business is that policies are written annually, and the industry is commission based. With high corruption said of government technocrats, government will write cover with insurance agents/ brokers willing to share part of their commission with the insured. That is why churn rate is soo high and threatens to fail to once giant.

According to the report, market leaders by market share of gross premium in non-life business are: Jubilee Insurance, with 23.7 percent, UAP 16.2 percent, AIG 14.3 percent. On the other hand, NIC controls a paltry 2.5 percent. That is bad for a company that commanded the whole sector before government of Uganda sold 60% of its shares in NIC to Nigeria’s Industrial and General Insurance Company Limited (IGI) and issued the other 40% to the public through an IPO in 2005.

Generally, Western African companies have had rough time doing business in Uganda and have either closed down like Global Trust Bank, been acquired like Orient Bank or are still struggling to attain break-even after over four years of operation like UBA and Eco Bank, which is being rumored to be up for grabs.

NIC’s 2014 results show a worse picture. The company declared a net profit of Ugx. 1.5bn up from Ugx .2bn in 2013. Net premiums reduced from Ugx. 7.7 bn in 2013 to Ugx. 7.6bn in 2014. The group’s financials show retained earnings at Ugx. 16.7bn in 2014 from Ugx.19.7bn in 2013.

Total assets reduced from Ugx. 85bn in 2013 to Ugx. 83 bn in F/Y 2014. The somewhat poor performance show earnings per share down from Ugx. 5 to Ugx 1.10. While the company’s share price on USE hit all time low of Ugx. 17 up from Ugx. 45 a few years ago at its IPO. This makes NIC among worst performers on USE. That is a cool Ugx. 28 loss per share to investors and goes ahead to cast doubt on the quality of auditors (who write the prospectus) against which investment is made. At the IPO, NIC raised Ugx. 9.5 billion. One wonders how this money was used and why the regulators are not reigning on the quality of leadership to account for the significant fall in the company’s capitalization.

NIC forgot, sorry, failed to pay a dividend in 2013, but issued bonus shares instead. This plodding decline in key parameters point to customers running away, investing in risky policies with high chances of risks occurring and therefore having to pay claims among others.

The current trend point to two things– a struggling company that is shaken by the competition and afraid about loss of customers. Today when you talk about insurance, the brands that come to mind are: UAP, Jubilee, AIG, in that order. NIC is no longer appearing among the ten, when evaluated against all major insurance growth and profitability parameters.

So how did it get to this bad?

Makerere saga and business model

The current challenges of NIC can be traced back to 2010 when a row emerged with Makerere University staff over Ugx.13billion. While NIC finally met her obligation, the company faced a bad corporate image. NIC is said to have lost a number of key corporate accounts to Kenyan based UAP, Jubilee, AIG, and Goldstar. Despite settlement, they did not do enough to regain the faith and trust of customers.

Some of their top risk advisers jumped ship to competition – thereby taking some customers with them – something bad with the way insurance companies operate. Customers build a lot of relationship and allegiance with the broker/ risk advisor, and if the broker changes employment, they move with over 80% of their clients. This is true because the insurers association, UIA, does not allow insurance companies to deal directly with their customers if they were acquired through brokers. The intention is to keep the broker in the picture so that they continue earning commission income on renewal business. Most of NIC’s business was through brokers, who switched it to competition as brokers must insure with companies that are responsive and dynamic.

Lose monopoly over government properties

The liberalization of insurance sector meant NIC lost control over govern­ment properties. It is now open to cutthroat bidding and the winner takes it all. One such account NIC lost is Uganda Management Institute (UMI) from which they used to earn almost free money, as record shows that there were hardly any claims by UMI for all the years they paid premiums. A source within NIC tells us that they used to charge/earn Ugx. 10m per UMI build­ing insured. The Institute has six build­ings. For all years they insured these buildings, no single fire broke out. That was free money for NIC, though they got “peace of mind”.

The company also earned hefty fees from insuring UMI’s electronic gadgets including World Bank properties and Worker man’s compensate to over 250 employees. This is just tip of the iceberg; sources within NIC tell how over the years companies have been shifting business to rivals.

Civil servants mindset?

The liberalized market met new approaches to the market. However, analysts and former clients we spoke to tell us that some NIC employees still operate with civil servant mindset. One former employee described them as ‘‘time watchers’’. Five is five and no minute is added to that no matter what. You can hardly find someone on the desk by 8:00am; and when it clocks 12:30pm, the office is empty. Even if folks are in, they will not attend to the customer until 2:30pm! With those kind of people, it is difficult to compete. They still think NIC does customers a favor to give them policies. Poor souls!

One man’s experience

‘‘Early in 2014, I went to NIC Head office to secure travel insurance. I reached there when it was closing to 5pm. The man behind the counter said in Luganda, “we are closed off for business. You have come past time.” The prospective customer had gone for a quote. He then told the man behind the counter that: “you people come late to work; I went to UAP and I was welcomed by smiling staff. I brought the policy. I have since recommended several of friends and colleagues.’’ He added: on average, eight of my colleagues at work fly to South Africa every month and all use UAP thanks to my recommendation. If they you treated me well, I would have recommended them to NIC.

According to analysts, you may have been there before, but changes demand new models and when you fail to adapt to the changes, you are destined for dark days. Changes in tastes, technologies, demographics etc call for new thinking. NIC is yet to settle in to these changes and we are worried this may call for total staff change as retraining may not help.

While rivals like UAP open till to 7:00 pm, waiting for the last busy customers, NIC reportedly closes at 5:00 pm. With heavy traffic jam in Kampala plus the rise of new towns, serious insurance players have opened up new sales points in these towns to serve customer who fear to come to town. While rivals have point of sale in these areas, NIC has chosen to stay in traditional towns.

NIC: where are the new products?

The success of UAP, Lion Assurance is moderately a result of product innovations that meet customer demands. Lion assurance and UAP for example have introduced a range of new products including Lion Legal Guard, KUNGULA Agribusiness, BodaBoda Insurance etc. We were unable to trace any new products from NIC that is responsive to market demand. The company’s new product development department is said to have gone into recess. Insurance is a business of giving people “peace of mind.”

This means that, you must come up with products that are in response to things that worry the prospective customers – people are worried about death, loss of property, loss of earning potential, sudden legal costs, and a plethora of many risks that await every day you breath. With ICT, people are now worried about being hacked or their brands getting bad publicity by an irate client on the social networks like Facebook. Insurance must continuously do research and come up with such products e.g. Cyber Insure – to cover anyone’s costs to manage their on-line reputation in case of a hack attack or malicious post of private information. That is the innovation we are talking about.

Rivals have not only recruited, but have also trained, motivated their marketing teams. For example UAP is said to be rewarding the best performers for an all-expense paid trips to great destinations in Mombasa or Dubai.

Cash strapped NIC?

From her building which also serves as head office, NIC used to earn additional income, however, the emergence of new modern buildings with modern amenities have seen tenants move away, leaving empty spaces. The cash strapped NIC has failed to give building a facelift.

With poor access road, no parking at NIC head offices, the alternative would be open outlets in several key areas out of town which NIC is not doing. The few sales points they have opened are in not in good places — in corridors – -an example of such is one opposite NWSC headquarters on Jinja Road. Such offices cannot attract corporate clients.

Tough times ahead

Just like Kenya Airways currently experiencing tough times, NIC finds herself in tight spot. As NIC tries to come up with a winning blueprint, the market has been invaded by regional, continental and global players with both money and experience. These are expected to give NIC hard times. This comes at a time when Insurance Regulatory Authority, IRA, has called for separation of general insurance from life insurance.

Recently, UAP Holdings Limited (UAP) entered into strategic partnership with Old Mutual Plc. The later now holds 60.66% shareholding in UAP, after acquiring an additional 37.33% of issued shares. Can cash strapped NIC match such players?

Experts speak out

Industry experts say NIC may have to rebrand and do a re-launch of the company to assure clients that they are company worth working with and have capacity to pay. The company needs major shake up in marketing department, to implement modern market driven policies to match rivals especially improving on their e-commerce presence. They may also need to recruit and motivate staff whilst they may slowly and gradually find themselves out. And this may be soon than later.

More about the author: Moses Kaketo

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