The interconnectedness of risks is threatening a perfect storm for Kenya and its insurance sector in the coming year.
That was the fear of a group of market experts who met at a round table organised by Africa Specialty Risks and Africa Ahead on the eve of the Insurance Institute of Kenya’s annual summit in Mombasa.
Asked what they see as the biggest threat to the market in the coming year, the participants were split between climate and political risks, which they agreed would both potentially lead to economic risks, which could directly impact insurance industry fortunes.
While the threatened Super El Niño may result in more claims and political risks may emanate from next year’s presidential elections, the biggest fear, agreed the delegates, was that trust could be lost in insurance, while economic hardships could result in fewer insurance buyers.
As Henry Gisumwa, manager training and bancassurance – general insurance, Old Mutual General Insurance, concluded “Political, environmental and economic risks are the most immediate facing us as an industry, not forgetting regulatory risks too.”
“However, the biggest risk is ourselves. Reinsurers and insurers are allowing rates to get ever thinner which makes it harder to pay claims. Eventually we are going to lose.”
While delegates broadly agreed there is a need for the insurance sector to remain sustainable and not to drive the market ever downwards, there was a strong feeling that it is a time of unparalleled and interconnected risks.
Beatrice Hiuhu, director-operations at Heritage Insurance, summed up the risks, saying insurers are facing both long- and short-term risks. “Look at environmental risks, we are threatened with a Super El Niño in the coming months which is expected to bring flooding.
“But we don’t know exactly what will happen and that makes it grim, because of the uncertainty and it leaves people not knowing what to do. The government says there is a percentage of preparedness but what does that actually mean?”
The fear is, she says, that Kenya could face food shortages, particularly from its breadbasket region. That in turn could lead to economic hardships just at a time when the country is facing political risks with elections looming in 2027.
In all, says Hiuhu, it could lead to an erosion of spending power on insurance, just at a time when the risks are at their greatest.
Benedict Akumu, managing director and principal officer at Afro-Asian Insurance Services, echoed those fears, saying the greatest risk of 2027 is uncertainty. That not only affects individuals but businesses and then overseas investors who may choose to hold off from investing until a clearer picture emerges. That circles back to the warnings about economic woes and political risks.
Stella Shyamala, political risks and trade credit underwriter at Africa Specialty Risk, agrees that it could all lead to poor investor sentiment. But she saw this as a golden opportunity for the insurance sector to support both local businesses and overseas investors and to give them confidence in the Kenyan economy.
“We remember the time when the dollar was US$1 to KES160 and what that meant for us. Now it is about KES130 and we wouldn’t want it to return to those higher levels, but insurance can help support those currency fluctuations,” she said.
With political uncertainty in the year leading up to the elections, the other major risk for investors is the real risk of expropriation or cancellation of licences to operate. Gisumwa pointed to the recent cancellation of the Tate Industry’s right to operate after decades of business in the country. As Shyamala said, insurance is designed to protect against just such an event.
“Think about Dangote,” she said, “will he be as welcomed by an incoming government? Who knows? But insurers can offer to protect his investments,” she said.
Rachael Kiragu, key account manager – training at ZEP-RE Academy, warned that political risks do not exist solely for big business but for the whole economy. She believes that insurers need to look after everyone.
“There is no money in the wallets of ordinary Kenyans and that is a risk. Insurers are here to derisk the population but do we have the right products in place to offer that protection?” she asked.
She also pointed out that most of the population remains involved in the agriculture sector, which is the backbone of the economy.
However, Chaya Ramchurn, senior manager (underwriting) at Africa Re, believes Kenyans and Kenya is fundamentally resilient and will weather any of these potential storms. “They will let tensions go and believe there is a brighter day ahead,” she said.
Tam Makimei, general manager – Mombasa at MIC Global Risks, suggested the potential challenges in Kenya were put into a global context.
“In November, we have the midterms in the US,” he said “and normally everyone would be talking about those but this time they are overshadowed by other things. Instability is not localised, whether you look to the UK, the US, Europe, the Middle East, or wherever, there are problems. Everyone feels the same.
“Think of countries like Indonesia, where political instability has little impact economically – the country has continued to thrive. We need to get to a place where we, as risk takers, can give our insureds confidence.”
Richard Omwoyo, assistant manager – underwriting at Continental Re, agreed, saying “As an industry we know there is a five-year election cycle, we need to be ready for that and to have the solutions in place for our customers.
“As a business, we are not shying away from these challenges and are changing our products to adapt to the new realities. For example, we will include war cover in our policies.”
He took the conversation back to climate change, admitting the it is flooding which gives him the most headaches, simply because they have been hit hard in the past in terms of claims.
“It is almost an annual event now and is almost guaranteed. We need to be prepared and come up with adequate solutions.”
Akumu was quick to agree and to suggest the solution does not lie in simply increasing rates or withdrawing cover from the most at-risk areas. This brought the group to the lack of reliable data and the difficulties of underwriting when clients could not produce accurate property locations let alone the flood risk.
Hiuhu said “We continue to react and are still not proactive. We need to become proactive but we can’t do that without data.” As the group agreed, if the data showed that annual flooding is an issue in some parts of the country, the insurance industry may not continue to shoulder the risk alone.
The industry exists to protect against the unexpected, they agreed, and not certainties. As a group, they agreed that the industry should be getting onto the front foot and engaging with the government to find workable solutions, possible at continental level.
Perhaps, they said, the industry associations should take a greater role in government engagement on behalf of insurers and reinsurers and lead the way in finding African solutions.
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