On December 1, Kenyans woke up to the news of yet another fire in Gikomba market. Being the biggest open-air market in East Africa, one would assume that this would be newsworthy, but it isn’t.
In an article by Martin Siele published in Business Today (December 19, 2021), in the past six years alone, at least 15 fires have been reported in the market.
The worst of these fires occurred between October and November 2021, where at least three fires were reported, namely, on October 19, November 8 and 26, respectively. And whereas successive governments always promise to get to the bottom of the cause of fires, nothing ever seems to be done.
The true cause of the fires has never been established, with a wide-range of theories as to possible triggers being floated depending on whom you ask. From suspected arson attacks from powerful and well-connected individuals intent on grabbing the land, to traders settling business scores, electric faults or the eviction of tenants occupying county houses, there is an endless supply of suspects and only keep s growing.
According to then Nairobi Senator Johnson Sakaja who was quoted in 2021 on the subject, “some of these traders burn the place in order to be compensated by the insurance after they cannot restock.” If this is true, then the same is quite alarming since the insurance claims are ever increasing and so are the premiums.
According to Ben Kajwang in his paper titled Contribution of Fire Insurance To The Growth of Businesses In Kenya, loss of business due to fire can be financially debilitating.
This damage can be difficult to recover from and the business owner may face a financial crisis. Nevertheless, cushion-like fire insurance can help increase the ability of business owners to rebuild their businesses after experiencing fire damage.
Indeed Gikomba is a market that has churned out millionaires. With the hundreds of thousands of traders dealing with all manner of goods, to the various service providers giving essential services to the customers purchasing goods, there is something for everyone.
These returns are often invested in table banking groups, popularly known as chamas, while the deposits form attractive security for access to credit.
This got me thinking, could it perhaps be true that these traders perpetuate the moral hazard dilemma? A moral hazard is a situation where an insured individual, knowing that he is insured, will act in a reckless or careless manner intentionally.
It is a situation where the insured takes advantage of the insurance company to make a profit of sorts. Could it be that these traders often engage in intentional malicious damage to their property since they are guaranteed of compensation?
According to the Association of Kenya Insurance Report 2019 on fire insurance performance, fire insurance is made up of fire Domestic and Fire Industrial insurance.
Fire insurance GWP was Sh13.07 billion in 2019 compared to Sh12.90 billion in 2018, a 1.25 per cent increase. Fire Industrial GWP was Sh11.39 billion (87 per cent) and Fire Domestic was KES 1.67 billion (13 per cent).
Total net earned premium was Sh3.82 billion, net claims incurred Sh1.67 billion and total expenses amounted to Sh1.98 billion while underwriting profit was Sh666.18 million. Industrial fire insurance took the cake of covers at 87 per cent while domestic insurance stood at 13 per cent.
These statistics underscore the increased appetite for the uptake of this covers while further underscoring the need to establishing and mitigating the underlying risks that perpetuate the increase in cost of insurance to deserving businesses due to its prohibitive costs.
Overall, whether or not this shall happen is a question of if rather than when, but perhaps this conversation can begin in earnest.
And with an economically challenging year characterised by a weakening shilling, increased taxation and capital flight due to investors migration, coupled by the influx of cheap goods from China and the far East, it is easy to see how tempting the prospect of an insurance payday would be to these traders. I mean who wouldn’t want some money during these times?
Until that happens, Kenyans and especially those who earn a living from the sprawling market shall only wait until the next fire to count their losses yet again.
The writer is an MA Counselling Psychology student at Kenyatta University