The beginning of 2017 was to bring fresh life into the insurance industry as a new law requiring all imports to be insured locally came into effect.
Underwriters were set to be the biggest winners of 2017 with marine cargo insurance valued at Sh24 billion annually after National Treasury directed Kenya Revenue Authority to enforce Cap 487 of the Insurance Act.
The policy provides indemnity against loss or damage for goods being transported by sea or air, and incidental land transportation.
Lack of inclusion, low awareness and poor implementation strategies are among reasons why the product has failed to pick up in the local market with relatively low uptake levels.
“Uptake of marine cargo insurance is still very low because implementation issues,” Shippers Council of East Africa chief executive Gilbert Langat said. “Each player in the insurance industry wants a piece of the cake without working together.”
The 2017 half year report by the Insurance Regulatory Authority shows that gross premiums collected from marine cargo increased by 21.4 per cent or Sh323.47 million despite the mandatory local underwriting for all imports.
This means that insurance firms collected monthly premiums of about Sh53.91 million. Calculations done by the shippers council found that in order to collect Sh24 billion annually from marine cargo insurance, underwriters have to collect premiums ranging between Sh150-Sh250 million per month.
Langat said that the estimated Sh24 billion only accounts for 40 per cent of cargo coming into
the country.
Over half of imports is shipped in without insurance. “If every importer is to buy insurance, gross premiums from marine cargo insurance could be in the upwards of Sh50 billion annually,” he said, adding 90 per cent of imported cars do not come with insurance.
Not only is it unclear on who is to implement and enforce the law between the Kenya Revenue Authority and Insurance Regulatory Authority, it is also unclear on whether it is mandatory for importers to insure their goods locally.
“There was a loophole in the new law making KRA reluctant to implement. During the year, some importers had a choice not to insure and they got away with it-KRA could not force them to insure imports locally,” Association of Kenya Insurers chairman Patrick Tumbo told the Star.
“The legislation needs enforcement and as long as marine insurance is not compulsory insisting that it be bought from a Kenyan insurer is of no value.”
If an importer has not purchased a local insurance policy, the taxman adds 1.5 per cent of the cargo value for tax purposes.
KRA recommended use of the Kentrade portal linking the insurer and owner of the goods as the only means of transacting marine insurance.
This will lock out agents and brokers from the multi-billion shilling sector.
“The industry forgot to factor in brokers and agents. Where do we come in?” Bima Intermediaries Association of Kenya Chairman Washington Ndegea said.
There is need to amend the legislation to ensure loopholes are sealed.
“If the industry engages in more prudent underwriting of the highly technical marine cargo insurance class there is bound to be improvement,” Tumbo said.