Insurance sector braces for change

The insurance business in Kenya is set to change. Some international insurers that have expressed interest in either buying stake in local firms or setting up shop are expected to complete their deals in 2015.

Further, a fresh set of reforms have raised the bar for insurers on the minimum capital requirements as well as governance. This has forced companies to merge or cede shares to new entities to step up performance.

The reforms include risk-based supervision and increased monitoring through an electronic system that allows the regulator, Insurance Regulatory Authority, to get timely information.

Kenya is the third country in Africa after Namibia and Ghana to adopt the electronic system.

The industry has also attracted investors that IRA said may spark buy-outs or buy-ins.

New entrants

“Kenya registered the highest growth in insurance in Africa, at 20.4 per cent in 2013, according to a survey by AM Best. It was also the second fastest globally after Lebanon, at 24 per cent. With this kind of growth, foreign companies have shown interest in investing here,” said Association of Kenya Insurers CEO Tom Gichuhi.

Insurance Regulatory Authority chief executive Sammy Makove said there are three potential new entrants into the insurance industry as foreign companies eye East Africa.

On governance, firms are required to cap individual ownership at 25 per cent, a rule that has seen companies seeking partners to dilute their stake.

Experts say the industry is moving towards consolidation in the next five years.

“Most of the insurance companies are commanding between four and 12 per cent. There are no companies driving the market currently. Indications are that some of the companies are becoming big and in about five years, I foresee market shares changing in favour of five to seven companies.” Mr Gichuhi said.

ON THE RADAR

In 2014, Prudential Insurance bought out Shield Assurance. Phoenix Insurance is said to be on the radar of some investors from Mauritius.

Experts say use of technology in the regulation of Kenya’s insurance sector is expected to trigger a major realignment of the business that currently has 48 registered insurers.

The experts say firms with poorly performing portfolio will have to scale down on the risks covered or seek fresh capital to enable them to continue business.

The risks covered by insurers will be based on solvency margins for every cover being undertaken rather than universal minimum capital.

“The system will improve data depth, consistency, quality and accessibility and enable the authority achieve its dynamic model of supervision, which is in line with international standards,” Mr Makove said.

The reforms are expected to stop undercutting, particularly in motor insurance that is affecting performance of firms as they have to squeeze thin margins.

Private motor vehicle insurance slipped deeper into losses, remaining the only unprofitable segment last year with insurers of private cars recording a collective Sh746 million loss compared to Sh100 million suffered in 2012.

“This can be attributed to the failure by underwriters to adhere to the prescribed motor underwriting guidelines issued by the Insurance Regulatory Authority,” said Association of Kenya Insurers in its 2014 annual report.

Commercial vehicle insurance segment, which has in the past recorded huge losses leading to collapse of some companies, has turned to profitability raking in Sh1.6 billion.

This was attributed to a decline in the rate of fraudulent claims and structured judicial awards in the Public Service Vehicle industry.