IRA’s Director of Supervision, Kalai Musee, noted that while some insurers struggle, many have over-invested in real estate, hindering their ability to meet claim obligations.
The Insurance Regulatory Authority (IRA) is asking insurers to reduce their investment in properties such as land and buildings to improve their liquidity for timely settlement of claims.
It says it is in talks with a number of insurers over their liquidity positions and believes dialling down on property investments in favour of highly liquid assets presents a viable option to manage their cash positions.
“We know there are a few companies that are struggling, some of them because of the economic situation. But we also have a lot of companies that have invested in properties and you know you can’t use properties to pay claims,” said Kalai Musee, director of supervision at IRA.
He spoke on Wednesday, September 18, in an interview on the sidelines of the CEOs Summit 2024 which has been convened by Kenya Re to chart ways for insurers and reinsurers in Africa to handle emerging risks such as floods and droughts.
“We have been talking to them to address this by liquidating the properties. But for the last five years, it has been a problem liquidating some of the properties but we are having the discussion with them as a solution to improving their liquidity position to honor obligations.”
Delayed or denied claims have topped the list of customer complaints against many insurers, contributing to keeping insurance penetration below three per cent.
Investment property makes up the second largest asset class for insurers in Kenya after government securities. As at the end of December 2022, insurers had put Sh92.37 billion or 11.1 per cent of their Sh833.7 billion investments in properties.
Partial divestiture from land could see insurers raise their allocations to Treasury Bills and bonds which accounted for 71.4 per cent of their total portfolio by the end of 2022.
Re's Managing Director Hillary Wachinga said the challenges facing insurers in settling claims mirror the liquidity challenges in the economy, coming from shocks such as floods and political violence that disrupted business activities.
“There are a lot of innovations around claims processing and settlement including using robotics and artificial intelligence in claims management. This means the time taken to process claims has come down but the liquidity to honor those obligations is the challenge,” said Mr Wachinga.
Insurers and reinsurers are using the event to explore ways of collaborating in the face of new challenges such as climate change, evolving technologies and shifting customer preferences. Weather-related risks such as floods, drought and earthquakes that have eroded their profitability have put to test insurers’ underwriting models, putting their profitability at risk.
