State mulls expanding mandatory insurance in Ksh.1.1 billion industry revamp plan


State mulls expanding mandatory insurance in Ksh.1.1 billion industry revamp plan
Insurance Regulatory Authority (IRA) CEO Godfrey Kiptum PHOTO | COURTESY

In Summary

  • The expansion of the scope for mandatory insurance is part of other remedies proposed in the policy document whose total implementation cost has been priced at an estimated Ksh.1.1 billion.
  • Presently, only motor vehicle covers are mandatory where driving without at least a third-party cover is illegal.
  • Insurance penetration in the country has remained on a general slump in recent years falling to 2.34 per cent in 2019 from a higher 2.56 per cent in 2006.
 

Kenyans could be forced to meet new compulsory insurance costs as the government moves to strengthen the local underwriting sector.

The new proposal is contained in the final draft of the National Insurance Policy published on Monday which is aimed at strengthening the policy, legal and regulatory environment for the insurance industry in Kenya.

The expansion of the scope for mandatory insurance is part of other remedies proposed in the policy document whose total implementation cost has been priced at an estimated Ksh.1.1 billion.

Presently, only motor vehicle covers are mandatory where driving without at least a third-party cover is illegal.

Expanding the list of mandatory insurance products is viewed as a cure for the low access and uptake of insurance where underwriters remain stuck to traditional products.

“The insurance companies in Kenya have largely relied on traditional products and taking on relatively conservative risks for their insurance portfolios. There is need for the government to play a proactive role in developing policy that supports the access and uptake of insurance,” states the policy document.

Other remedies proposed in the new policy include the push for new specialized insurance products and services such as covers against the adverse effects of climate change and the expansion of social insurance programs to cover new aspects such as unemployment.

Moreover, the policy is pushing for cost reduction and enhanced customer experiences by the industry through technology adoption.

Additionally, the policy envisions greater consolidation in the industry as it highlights the high fragmentation of the market which has resulted in greater price based competition strategies to the detriment of the industry’s optimal growth.

The policy follows an estimated 14-month consultation process initiated by the National Treasury, featuring other key sector players including the Association of Kenya Insurers (AKI), the Attorney General, Central Bank of Kenya (CBK) and the Association of Insurance Brokers of Kenya (AIBK).

The technical committee highlighted overlapping challenges for the sector including low public awareness, concentration of insurance in main urban centers, limited underwriting capacity and a poor financial performance by most general insurance companies.

Insurance penetration in the country has remained on a general slump in recent years falling to 2.34 per cent in 2019 from a higher 2.56 per cent in 2006.

This against a global average penetration rate of 7.2 per cent. Kenya nevertheless features, Africa’s third most profound insurance industry after South Africa and Morocco.

The performance of the industry has nevertheless deteriorated with firms returning a Ksh.3.3 billion underwriting loss in 2019, the worst performance in 20 years.

In the general insurance category, the motor class made the heaviest losses at Ksh.7.4 billion representing a 92.4 per cent deterioration in performance.

As at the end of 2019, Kenya’s insurance industry was represented by 56 insurance companies, five re-insurance companies, 237 insurance brokers and 10,471 agents.

Insurance brokers and agents controlled about 85.8 per cent of the sector’s business in terms of premiums earned by the industry.

In the same year, the industry had Ksh.132 billion in written premiums.

Six, non-life insurers control about 40 per cent of premiums in their category while seven life insurers hold 75 per cent of the life business.

This leaves the bulk of underwriters scrapping for the remnant of the industry’s pie informing price wars among players.

No one insurer in the country has a hold of at least 10 per cent of the industry.

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