NAIROBI, Kenya, May 5 – Following recent turbulence in the banking sector, where improved supervision has exposed poor governance practices, insurers could suffer similar fate as regulations tighten.
This is according to a new insurance industry report by Cytonn Investments which highlights annulment of a law capping accident victims’ pay, which placed maximum victim compensation at Sh3 million as an example of tough times for the sector.
Also, proposed changes to the Insurance Act that stipulates guidelines on capital adequacy and risk charges on respective investment options indicates stiff supervision.
However, according to the report, limiting claims for accidents is not the correct way to bring discipline to the sector.
“A national registry of drivers linked to their insurance and claim history will be more efficient. Premiums can then be priced off, and increased, for poor driving records revenue diversity and product innovation,” the report states.
The report indicates that increased risk based analysis on investments and deeper supervision on internal practices by insurance companies is expected to shed light on companies that are poorly run bringing confidence to investors.
According to the report, diversification of revenue is key for profitability as insurance companies are largely unprofitable.
Most insurance companies recorded decline in profitability that included Britam which posted Sh1 billion loss in 2015 compared to a Sh3.73 billion pre-tax profit in 2014. Liberty Kenya on the other hand recorded Sh800 million profit in 2015 down from Sh1.1 billion in 2014.
CIC Insurance posted Sh1.3 billion pre-tax profit in 2015 down from the Sh1.4 billion in 2014.
According to the report, insurance products are not tailored to the common citizen and not innovative enough to target citizens with low disposable income.
“The sector still has a lot of opportunity for growth, if correct distribution mechanisms are employed to grow awareness and subsequently grow premiums , with a positive correla1on to disposable income, majority of Kenyans are still priced out of policies,” the report states.
Consolidation is also expected to dominate the sector going forward with firms that are strong on distribution such as Britam, Pan Africa and Liberty acquiring Real, Gateway and East Africa underwriters, respectively.
However, as the report notes their strategy is confused as companies which are life businesses are venturing into general business.
According to BIMA Intermediaries Association of Kenya Chairman Washington Ndegea there have been concerns of cooking books in the sector and the regulator needs to attend to it before it’s too late.