It’s time to rethink the motor insurance supply chain

September 18, 2017
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The Q1 2017 Kenya insurance industry results indicate that motor insurance accounts for 42 percent of the total insurance business.

The total underwriting loss for the motor class of business for the quarter was Sh259 million. This performance requires the attention of the affected players but mostly the insurers, reinsurers, policyholders and the regulator.

Across the globe, insurance is a vehicle that governments use to fund the economy as policyholders make long-term savings by purchasing various investment instruments. The regular savings accumulated over time are invested in land, buildings and government treasury bills and bonds, commercial paper and shares in both listed and unlisted entities.

These investments ensure that the returns in addition to profits are sufficient to match payments of maturing liabilities.

For protection from insurance to be realized, clients pay agreed premiums and at the time of need – either accident, catastrophe, death, etc. they receive timely and fair claims payment, repair or restoration of the insured object.

In addition to funding long-term investments, insurance players are big contributors to the exchequer in terms of taxes and other levies. It also creates employment which in effect ensures stability of many families across the country.

One of the ways to ensure profitability is realized in the insurance industry is by implementing prudent cost reduction strategies and increasing efficiencies in the processes behind the management of the claims.

Expenses relating to commissions are often fixed as they are controlled by regulatory guidelines, while the current insurance business model is people centred and therefore management expenses are also largely fixed.

Going forward, as innovation and technology permeate the sector, staff costs will remain high.

Claims costs which in many cases are more than 70 percent of the net earned premiums will have to remain a focus area for insurance firms.

For efficient and seamless management of motor claims in the insurance business, collaboration between the various stakeholders will be necessary as they are all beneficiaries of a profitable and sustainable sector.

Some of the key stakeholders are underwriters who are the insurers, reinsurance brokers through who the reinsurance business is placed, reinsurance companies to who excess of insurers capacity premiums are ceded to, insurance brokers, agents and banks, who are the distribution channels for insurance, investigators who validate the accident claims and loss adjusters who place the right value on claims among others.

The supply chain management process is therefore crowded with each stakeholder’s primary goal being to make maximum profit. The more the touch points the higher the costs, with increased opportunity for collusion and fraud.

Close monitoring, control and management of the additional costs will guarantee the viability and sustainability of the insurance business.

In my view, a number of changes need to be put in place as the industry player’s work towards managing costs in the motor insurance space.

Establishing standards and guidelines for quality garage set ups that repair vehicles, the right pricing for all parts used to repair vehicles is one step in the right direction.

There is no blind science when it comes to insurance, the insured individuals will also need to arm themselves with the necessary information and ask the necessary questions whenever they are in doubt.

Streamlining the supply chain from purchase of the policy, accident management and repair, delivery of the repaired vehicle to the client who is the beneficiary of the insurance product will also be essential.

The ultimate question is, should insurance companies keep off or engage their stakeholders to ensure an efficient and cost effective motor claims management process?

Johannes Kitaka – Chief Financial Officer, Jubilee Insurance Kenya  

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