Banking, Finance and Insurance
Insuring Government Assets – a Value for Money
Times have changed and so is the way of doing business. While celebrating our 58th Independence Anniversary, our message was and is still on encouraging ourselves to embrace, prioritize and adopt insurance, considering the rate at which uncertainties are occurring in the current times.
Uncertainties do not have boundaries and neither do they choose where and when they should or should not occur. On 20th September 2020, fire gutted the iconic Ivory Tower, a prominent landmark at Makerere University. The overnight blaze left the University distinctive white walls with blue-shuttered windows blackened, a situation described as destructive and unbelievable.
Fire has always been a risk to all private, government assets and properties and continues to be a frequent cause of loss of government revenue. It is even worse when it guts significant historic buildings like we witnessed the 2010 fire that engulfed the national heritage Kasubi tombs. Similar occurrences may happen to historic places of worship like the places of worship, traditional, tourists’ centres and historical buildings that have been in place for the last 100 years. I will not give examples but they are well known to all of us. The nature and fabric of many historic buildings frequently places them at increased and high risk to fire spread once ignition occurs.
Away from fire, in 2006, remember the MV Kabalega which capsized after colliding with MV Kaawa on Lake Victoria, investigations into the incident showed that both government vessels were unfortunately not insured causing an estimated loss of close to Shs 45bn.
Just in May 2020, as the country was grappling with COVID-19 lockdown, residents and patients at the Kilembe Mines referral Hospital in Kasese, ran for their lives after Rivers Nyamugasani, Nyamwamba and Mubuku burst their banks and flooded through homes, swept and destroyed many hospital equipment. The sad incident forced the hospital administration to temporarily close down and the hospital’s medical superintendent, Dr. Edward Wefula then said a total of Shs3billion was needed for renovation.
In the recent years, the risks to government assets and private property posed by fire, storms, extreme rainfall and flooding have become more acute thus the need for adaptation of adequate protection and insurance of the assets and properties (buildings) with their contents.
The changing circumstances, threats and risk exposure we are experiencing today, introduces new perceptions of risk, vulnerability and at the same time the under or over estimations made for repair and rebuilding costs, is also creating considerable challenges to policy makers.
Insurance is an important aspect in the risk management and the assumption that insuring government assets and properties increases government’s expenditure is farfetched. There is value in insuring properties and assets. Replacing an asset or property is such an expensive decision because the cost to replace an asset can change, depending on variations in the market value of components used to reconstruct or repurchase the asset, in addition to other costs needed to get the asset or property ready for use.
There are so many building structures, vehicles, machinery out there under the custodian of government that are vulnerable to different risks and are not insured. Hundreds of government vehicles that had accidents and would need minor repairs are rotting away in public parking yards and private garages across the country citing high repair and maintenance costs causing wastage of public resources yet insurance can take care of such costs when such risks happen.
We have also witnessed government spending on re-establishing, rebuilding and or repairing assets and properties with no support. Makerere University authorities are making plans to have fundraising strategies (Shs15billion is required to repair the tower) that will see alumni and people with an attachment to the university to donate towards the restoration of the burnt iconic Ivory Tower. The story could have been different if the authorities had embraced insurance and provided adequate protection for the properties and assets. It is never too late, University is still exposed to risks so the authorities are encouraged to embrace, adopt and prioritize insurance before any other occurrence.
The idea of insurance for assets and properties should not actually be a concern of government alone. We have witnessed private properties equally suffering related losses like factories, schools, Supermarkets, fuelling stations all going into flames, incomplete buildings collapsing among others.
The Insurance Regulatory Authority of Uganda (IRA) continues to engage and appeal government ministries, departments and agencies to consider insuring public properties. We commend those who have come through on this and emphasize that engage licensed insurance players because they have the technical and financial capacity required to provide adequate insurance of properties and assets.
To help manage risks of government assets and properties and with support from the World Bank, the Authority is undertaking a risk assessment to advice government on the appropriate insurance protection. The assessment shall use accurate, up-to-date valuations that consider matters such as indemnity value, replacement cost, maximum probable loss, demolition costs, and inflation.
With the risk exposures and happenings, we should avoid the choice of not insuring which means that the costs incurred in damage, repair or total loss of the assets come from government reserves or continued government borrowings which affects economic growth. So let the recent fire incidents be a wake-up call for all policymakers, embrace, adopt, and prioritize insurance. Accounting Officers should also be held liable for such omissions or commissions.
Alhaj Kaddunabbi Ibrahim Lubega
Chief Executive Officer
Insurance Regulatory Authority of Uganda