How vehicles are killing insurance firms

March 10, 2009

, NAIROBI, Kenya, Mar 10 – Insurance industry players have decried the poor performance in the motor business which they claim is resulting in the heavy losses for nearly all general insurance firms.

Association of Kenya Insurers (AKI) Chairman Nelson Kuria said on Tuesday that the perennial losses and fraud cases being reported in the motor insurance industry had made the insurance business unsustainable and the same was being reflected in the firms’ profitability.

“The loss ratio has been escalating year in year out and there is no way that a business can be sustainable with those kinds of losses. Hefty profits are being reported by banks but wait until we in the insurance sector start reporting losses. It will look like child’s play,” he warned.

He told Capital Business that the loss ratios were at times going beyond 90 percent which pointed to the industry’s loss-making streak.

“We are not making money. In fact in any given year, only less than ten insurance companies are making profit on motor (business),” the chairman complained.

Between 2004 and 2007 for example, claims accruing from commercial and private motor insurance covers averaged a ratio of 63 percent while in 2005 they were at 75 percent.

However, to arrest this deterioration, Mr Kuria said there was a need to review the Insurance Act and introduce structured compensation where the claimant is paid directly.

If the revision was effected, he said, the beneficiaries would get their money in full and at the earliest opportunity possible.

“At the moment, the full payment is done to the lawyer who will then decide how much to give to the claimant and how much he will retain. At times, they (lawyers) don’t tell the applicant that they have received the money from the insurance company and will end up using the money,” Mr Kuria said of the rogue attorneys who fleece their clients.

He claimed that the industry had been pushing for this amendment for many years but it was not forthcoming due to vested interests in government.

Mr Kuria spoke after AKI signed an agreement with insurance auxiliary service providers, including the Automobile Engineers and Assessors Association (AEAA), Kenya Automotive Repairers Association (KARA) and National Association of Kenya Investigators (NAKI)  to introduce standards and benchmarks for commercial and private motor claims.

The standards will be critical in eliminating fictitious claims filed by service providers which in turn will reduce the losses incurred by insurance companies through the manipulations of quotations.

AKI said the initiative is part of a wider effort to develop a common catalogue for products and services to ensure that all insurers are well informed and avoid being ripped-off by shrewd traders.

The Association also said that this partnership would lead to an increment in membership among motor claims stakeholders as service providers compete for a position in organised groups of repairers, inspectors and assessors.

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