AKI faults insurers over foreign deals
- Many insurers are going against regulations and selling out risks that could easily be covered in local market.
Crafty local insurers are bypassing their local counterparts and ceding out premiums to foreign underwriters for a higher commission, reducing overall earnings for fellow Kenyan insurers.
Kenya Association of Insurers (AKI) chief executive Tom Gichuhi said in an interview with Business Daily that many insurers are going against regulations and selling out risks that could easily be covered in local market.
By passing part of the risk to offshore insurers, the local firms earn a commission as would a broker, an incentive that is driving capital flight from Kenya.
“When they realise that they earn more commission by passing the risk to offshore insurers as opposed to spreading it to other local firms, they bypass local insurers,” said Mr Gichuhi.
“That amounts to taking out significant portion of premium that would have been generated in this market had they not been driven by greed.”
This has slowed growth in premiums. In 2018, premium growth was at 2.22 percent, marking the fifth straight year of decline when compared with 21.3 per cent growth pace in 2013.
Ceding is a common practice in insurance as it allows the primary insurer to reduce risk exposure by passing the balance of the risk to other willing insurers.
Areas such as cyber risks as well as oil and gas where capacity for local insurance is still low were traditionally common for ceding but now this is stretching into basic risks such as fire and motor vehicle.
The Insurance Regulatory Authority (IRA) requires that before placing a risk outside Kenya, an insurer seeks regulatory approval by demonstrating that the entire local market is unable to absorb the risk.
This is in line with section 20 of Insurance Act which dictates that all business carried out in Kenya must be insured locally unless with special approval from IRA.