Kenya’s underwriters count on premium hike to halt losses in motor insurance

Kenya’s underwriters count on premium hike to halt losses in motor insurance

Kenya’s underwriters are counting on increased premiums to halt the streak of losses in motor insurance but will first have to surmount legal hurdles.

Many general insurers in the East African country had from 1 January raised their premiums in bid to shield themselves from rising losses but are now facing legal battles with customers.

The Kenya Human Rights Commission (KHRC) sued insurers and the regulator, the Insurance Regulatory Authority (IRA), accusing them of unreasonably increasing motor vehicles premiums and declining to offer compressive cover for vehicles that are at least 12 years old. Insurers are now waiting for the outcome of the case, with the High Court on 12 January having suspended the changes and given 24 February as the next court date.

“Having considered the application and careful evaluation of the same, I find that the petitioner (KHRC) has demonstrated a prima facie case with a likelihood of success,” ruled Justice Makau of the High Court.

Kenya’s insurance firms are desperate for success in this matter, given that underwriting loss from insuring motor vehicles more than doubled in the nine months ended September last year, from KSH3.52bn ($31m) to KSH7.31bn ($64.46m). Underwriting losses from motor private insurance jumped by 120% to KSH4.83bn ($42.6m), while that from commercial motor vehicles rose by 87.3% to hit KSH2.48bn ($21.87m).

Private vehicle insurance class looks set to post underwriting losses for the tenth straight year, with the situation complicated by fraud and price undercutting as insurers battle for customers.

Kenya’s insurers will be hoping for success from the courts. But past history shows they have suffered unpopular decisions in courts. The court for instance last year quashed amendments to underwriting rules that had barred brokers from collecting premiums on behalf of insurers.

Insurance intermediaries were to be fined of up to KSH100,000 ($882) or imprisonment for a term of three months, or both if they handle premiums. Back in 2017, motor insurers suffered a blow after the IRA-sanctioned price-fixing deal implemented in 2010 was dismissed by the High Court.

Some insurers had started implementing their latest rules for insuring motor vehicles, including setting a minimum of KSH45,000 for vehicles valued at less than KSH1m. Other underwriters had informed customers that they were no longer going to issue comprehensive insurance cover for vehicles valued below KSH600,000.

The insurers were also departing from the tradition of charging premiums of about 4% of the value of vehicles for the comprehensive cover.

Kenya’s insurers had in 2019 launched digital motor vehicle insurance certificates to quicken the process of applying and renewing the covers, and also to counter the rampant fraud.

However, the Association of Kenya Insurers (AKI) chief executive Tom Gichuhi said late last year this move was not going to be sufficient in putting brakes on losses in motor insurance.

“Premiums and claims are expected to go up as more Kenyans buy vehicles. But until some of these fundamental structural problems such as fraud and price undercutting are addressed properly, we are likely to remain in loss-making space,” said Mr Gichuhi.

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