Insurance In Sudan
SUDAN IS A LOW RISK ZONE, HAVING A LOW CRIME RATE, RARE FIRES, AND MODERATE accident rate, all facilitating relatively low premium rates compared to other major African insurance markets. However, Sudanese are insurance conscious and most businesses budget or comprehensive insurance coverage. Third party automobile insurance is compulsory and must be acquired in tandem with a driver’s license, even if one does not own a motor vehicle. Vehicle owners usually prefer comprehensive coverage and of the various types of insurance,auto enjoys the highest volume of policy sales. Insurance was first introduced in Sudan during the first decade of the 20th century
and today, there are fourteen companies operating in the market. Significantly, there has been limited new private investment in insurance companies since the introduction of the law requiring all insurance firms to conform to the Sharia prescribed cooperative insurance, which considers surplus earnings the good fortune of policy holders with
no returns, apart from a share in profits on the insurance company’s investments to shareholders. Al Baraka Bank, an international pioneer in Sharia compliant financial services, however, owns a thriving insurance subsidiary, Al Baraka Insurance Co.
Under this dispensation, shareholders have become trustees. The major portion of annual surplus, as determined by the Controller of Insurance, is retained in the premium reserve account, while the balance is distributed to policy holders. However, industry executives point out that, in Malaysia Sharia guided insurance regulations give both
company owners and policy holders a percentage of the surplus.
Around 1980, Sudan became the first country to offer Cooperative Islamic Insurance, which was introduced by the pioneering Sudanese Islamic Insurance Company, but it was after General Al Bashir’s National Salvation Revolution in 1989 that non-Sharia compliant insurance was banned.
There is no precedence of management buy outs in Sudan, which would enable managements to buy insurance companies from disenchanted shareholders and reward themselves and staff for incremental performances through
salary hikes. Therefore, in the absence of legislation affording a percentage of surpluses to shareholders, private investment in this sector will likely continue coming only from banks, as it has been for the past 14 years. Thus far,
Al Baraka Group is the only bank centered corporation to directly invest in the insurance
business and get involved at the management level, but as Al Baraka’s shareholders in Sudan include Tadamon Islamic Bank, Faisal Islamic Bank, Al Shamal Islamic Bank, Export Development Bank, and Sudanese Islamic
Bank, 5 banks have indirectly invested in the insurance sector. Any new company must receive authorization for registration under the 1925 Companies Act by the Insurance Supervisory Authority (ISA). Assets of companies are required to exceed liabilities by not less than 30% of the paid up capital. Industry professionals have participated in designing the current policy regime. Apart from AlBaraka Islamic Insurance, which complements the banking business, the existing private insurance companies remain in business apparently because of the growing market characterized by a low risk profile. However, the number of companies operating in the market has reduced
from 17 in 2002 to 15 in 2005– 14 of them offering direct insurance, one solely in the reinsurance
business. Two, Shiekan Insurance & Reinsurance Company and National Reinsurance Company, are government owned.
If Islamic Cooperative Insurance has given traditional insurance investors no cause to celebrate, the Sudanese public is more at home with it than the conventional varieties, which were widely regarded with suspicion. Over the period 1992 to 2000, premium income increased by 984%. Insurance premium volume during 2002, the last year for which statistics are currently available, amounted to $65,748,092; up 28% from $51,328,244 the previous year. Net premiums to the domestic industry, after transfers to reinsurance companies abroad, totaled $37,889,313.
Government owned Shiekan Insurance & Reinsurance Company, with a string of branch offices extending into most of the country’s 26 states, dominates the market with a 60% share. Shiekan offers a broad range of insurance,
including Group Medical, Family, and Life, in addition to motor, property, engineering, marine, aviation, agriculture,
and miscellaneous (plate glass, cash, and theft). A 1991 Presidential Decree awarded Shiekan the sole right to insure
government assets, giving the company a privileged position in the oil industry, for which it provides coverage for all risks.
With a growing industry turnover, Sudan’s insurance companies are plugged into the major reinsurance markets, including Lloyd’s–which reinsures all aviation policies, Africa- Reinsurance in Lagos, Arig Group in Bahrain,
Egypt Re, Kenya Re, and companies in COMESA’s Preferential Trade Area (PTA). The Islamic Cooperative Insurance companies typically fix their own terms of placing risks with reinsurers: the dealings should be based on net premiums and the reinsurer should not attach to the Islamic insurance company’s account any interest earning
premium reserve account. Establishment of the National Reinsurance Com-pany and the Reinsurance section of Shiekan Insurance & Reinsurance Company has gradually increased the domestic capacity for reinsurance.
Presently, 50% of the reinsurance treaties and 35% of the risks
should be placed with the National Reinsurance Compa-ny, unless it declines offers. In accordance
with an African Union protocol, 5% of the reinsurance business should go to Africa- Reinsurance Corporation, while
10% should be reinsured with companies in the Common Market for East & Southern Africa’s Preferential Trade Area. However, the Controller of Insurance issues resource utilization guidelines aimed at enabling insurance companies to steadily increase their capacity for risk portion bearing.
Investment opportunities allowed for insurance companies are lucrative. Government bonds, mutual funds, and the Islamic banking system’s unrestricted investment accounts combined allow insurance money to flow throughout the
economy. Each insurance company is entitled to own one building. For Sharia compliant banks like Al Baraka, investment in an insurance company provides additional funds for its unrestricted investment accounts, through
which profits on insurance operations can be indirectly earned. At the same time, the bank insures its assets with its insurance subsidiary and shares in the disbursed surplus. Net refunds to policy holders on 2002 operations amounted to $19,446,565, 29.57% of gross premium income, an 8.7% increase over the previous year. Claims payments increased significantly by 26.5%, from 2001 to 2002, amounting to $31,992,366. Unlike some Sharia based systems, Sudan’s Islamic Cooperative Insurance model does not deduct a policy holder’s claim disbursements from his share of the disbursed surplus. Generally, the industry’s contract terms in Sudan provide a handsome incentive for businesses to budget for insurance.
A policy holders’ bureau, comprised of an insurance company’s subscribers, is at liberty to inspect the company’s records on behalf of the cooperative’s subscribers to assure that their interests are justly served. The bureau nominates at least one person from its membership to the insurance company’s board of directors and may also make recommendations to the cooperative.
Operating in a relatively low risk environment and obligated to refund a portion of surplus premium income retained, Sudanese insurance companies are accustomed to paying claims, for technically the surplus in the premium account is considered a claim by policy holders against the insurance company.
Personal (Takaful in Sudanese Sharia terminology) insurance coverage can be acquired for death, injury, permanent and temporary disability, and dread diseases, such as cancer, kidney failure, stroke, and coronary thrombosis.
Benefits paid in event of death are subject to distribution in accordance with Sharia inheritance law. However, personal insurance is sold only on a group basis, with the members of the cooperative sharing in the disbursed portion of the annual surplus. A group may be constituted from duly organized individuals in a neighborhood, but usually professional associations and employees constitute cooperative
insurance purchasing groups. Family insurance is offered for travel, accidents and medical risks coverage. The insurance law also provides for business interruption insurance and public liability
insurance, the latter useful to contractors and others involved in operations posing coincidental
risks to the public at large.
Pension schemes for workers are provided by the National Social Security Fund, while managers and officials contribute to the National Pension Scheme.
In summary, Sudan’s insurance industry is a reliable claims payer and affords insurers returns that are conceptually not included in conventional insurance. For the policy holders, it is the best arrangement in the insurance world,
but for investors other than banks, there is no incentive to invest in insurance as long as shareholders
are not promised a share in the premium account surplus. Sudanese banks, which can place premium funds of their insurance subsidiaries in unrestricted investment accounts and earn profits thereby, stand to be the biggest
winners in the prevailing system.