NAIROBI, Kenya, Sep 29 – A new survey suggests that the minimum share capital for insurance companies should have been pegged at a minimum of Sh1 billion.
Ochieng Oloo, the Chief Executive Officer of Think Business – a business research company- said the initial requirement to raise the paid up capital to between Sh300 million and Sh450 million for firms dealing with general business, life or composite insurance has failed to achieve its objective of forcing them to merge.
“Having spoken with many players in the insurance industry, many of them feel that the capital requirement should have been a lot higher. I can’t see why we cannot require insurance companies to have a minimum capital base of about Sh1 billion,” he said.
In the 2007 Budget, the then Finance Minister Amos Kimunya announced regulations that required insurance firms to enhance their capital based on the different classes of business that they underwrite before June 14, 2010.
Those dealing with general business were required to raise their share capital to Sh300 million, while those underwriting life were expected to increase theirs to Sh150 million. For firms doing both general and life, the requirement was pegged at Sh450 million.
It was widely believed that the move would strengthen the industry with more than 40 players and force the medium and smaller players to consolidate their operations in order to survive.
This has not largely happened as some opted to have their directors inject their own funds into the business while others retained their companies’ earnings. Despite its huge potential, the industry is still performing poorly with an asset base of Sh177 billion and an insurance penetration level of three percent.
If drastic regulatory measures are not taken, Mr Oloo feared that the industry would remain small as compared to the vibrant banking sector whose asset base as at December 2009 stood at a whooping Sh1.35 trillion.
“If we don’t get urgent measures, it is going to continue having very small players in the market that have no teeth to bite anything,” he warned adding that the situation was not getting any better seeing as many companies were now separating their life and general businesses.
While he lauded the move as one that will enhance risk management in the sector, Mr Oloo said that this restructuring would result in more organisations offering insurance services in the market.
“Although that is good in itself, the fact that we still have too many players in the industry does not do much to enhance the penetration of insurance covers in the country,” the CEO said.
However, provisions of incentives coupled with sensitisation workshops to educate people about the importance of having insurance policies would go a long way in providing the much needed boost to the sector, he emphasised.
He alluded to the capacity of the industry to mobilise savings saying it was as big as the Sh300 billion retirement benefit sector which made the case for government’s support to them.
On their part however, insurance companies would have to be innovative and implement strategies aimed at offering first class insurance services and those that can increase efficiency and stability in the operations.