NAIROBI, Kenya, Sep 20 – The Association of Kenya Insurers (AKI) is calling on the government to establish a structural compensation scheme, in the wake of rising cases of fraud and exaggerated claims that are stifling growth in the sector.
AKI Executive Director Tom Gichuhi said on Tuesday that claims payment in Kenya had grown faster than the industry has been able to attract new premiums causing loses for a number of insurance firms.
“We are seriously pushing the government on having this structural compensation scheme in place to cushion insurers. Previous actions such as raising premiums and pooling risks have so far failed to bear any fruit, but have instead left insurance companies paying more claims than generating premiums,” Gichuhi said.
The problem mostly occurs on the motor insurance segment, which accounts for 45 percent of gross premiums, but with an unregulated PSV sector, claims have risen over the years.
In 2010, claims payment grew by 30.7 percent to Sh40 billion while total premiums stood at Sh50.21 billion.
Gichuhi warned that the recent collapse of Blue Shield Insurance Company has further cut the number of insurance companies willing to cover the widely used buses and matatus.
The structural compensation scheme will help the industry put in place mechanisms that protect insurance firms from exploitation by fraudulent customers.
He further proposed that PSVs come up with their own insurance companies in a bid to regulate the chaotic matatu industry, as this might be their only option should the two remaining underwriters fold.
“So long as buses and matatus operate in an unregulated environment loses being picked up by insurers will continue to rise,” Gichuhi said.
Last week, the Insurance Regulatory Authority said the growing trend of PSV underwriters going under was worrying and as such, immediate action needed to be taken.
Meanwhile, AKI has formally released the 2010 insurance industry statistics, where the penetration of insurance in the country has increased to three percent of the population due to an uptake of products and services for the second straight year.
“The industry’s annual performance exceeded the overall economic growth projection of 5.6 percent in 2010,” he said.
Gross earned premium increased by 17.7 percent to stand at Sh63.44 billion in 2010 compared to Sh53.92 billion in 2009.
Non-Life insurance premium grew by 21.43 percent while life insurance premium and contributions from deposit administration and investment/unit linked contracts grew by 25.23 percent.
Earnings from investment and other income increased by 58.3 percent from Sh5.10 billion in 2009 to Sh23.93 billion in 2010.
Combined industry profit after taxation increased by 79.5 percent to Sh7.7 billion in 2010 compared to Sh4.29 billion in 2009.
At the same time, the overall underwriting profit posted under non-life insurance was Sh1.27 billion compared to Sh414 million in 2009.