Consistent loss in insurance to see firms increase underwriting rates

Insurance firms in Kenya continue on the loss-making streak revenue in the non-life insurance business for the fourth year with the classes making a loss of Sh2.87 billion in 2018.

A new report by Association of Kenya Insurers has shown that the underwriting loss in the business covering 14 classes of risks including medical, fire and motor vehicle covers was more than half compared to Sh1.01 billion loss made in 2017.

The insurance coverage on private motor vehicles made the highest underwriting loss of Sh2.707 billion from Sh2.74 billion made in the previous period.

This was followed by commercial motor vehicle class that made an Sh1.115 billion loss and medical class with Sh1.078 billion loss.

During the period 37 out of 54 insurance companies wrote non-life insurance. Out of the 37 companies, 15 recorded negative growth.

Marine class had the highest underwriting profit of Sh439.20 million. This as the business start to normalise after the implementation of marine insurance laws in 2017, requiring importers to insure their marine business locally.

The report has attributed this loss to Work Injury Benefits Act (WIBA) policy made a loss of Sh0.38 billion due to migration of GPA risks.

Speaking to the Star, AKI chief executive Tom Gichuhi said this had affected the risk management and assessing underwriting rates especially in the combination of two risk exposures.

He said the industry lacked an underwriting discipline despite being negatively affected by brokers and stiff competition, making some players ask premiums below what allows them to pay as claims.

Due to this, Gichuhi said some corporations such as the electricity generator KenGen pay 0.05 per cent rate on risk exposures of fire.

“Motor vehicle cannot be priced at 1.5 per cent while the scientific rate is 4.0 per cent,” he said.

Insurers are still battling with brokers in court for owed Sh40 billion due to n0n-remittance.

“Rating is not being done properly to the point of claims exceeding the premiums," Gichuhi added.

The underwriting loss has also been attributed to, offshore placement of business, non-compliance in declaration and over-ceding of premiums for instance medical class leading the insurance firms to operate on low premiums of around 75 per cent of gross written premiums.

During the period, total premiums to re-insurance firms were Sh36 billion with medical, fire (commercial) and engineering class contributing a high of Sh12 billion, Sh8 billion and Sh3 billion.

Gichuhi has said the risk-based capital regime to be introduced on July 1, 2020, will bring change to the industry.

"Majority of the firms are working with low capitals, under low returns to shareholders and losses. But once the RBC is effected they will sort out most of these issues," he said. 

The enforcement if introduced may cause an increase or introduction of a minimum underwriting rate for fire commercial and motor vehicle policies for policy takers.

“The RBC will sort insurance risks, premiums, credit risks which account for 36 per cent. We hope it will improve cash flows and increase sales," he added.

The proposal was first to take effect on July 1 2018 but the industry lobbied for a three-year extension saying it was not ready, as well as Competition Authority of Kenya raising concerns over a possibility of creating a monopolistic environment.

"We are certain there will be no extension this time around. We will start to see positive performance from 2021," he added.