What is the anticipated impact of the New Insurance Act in Kenya?
TOM GICHUHI: With the new act, the Insurance Regulatory Authority (IRA) will be under the umbrella of the Financial Regulatory Council, following a shift to a risk-based solvency model. Meanwhile, licensed insurance providers will be required to join trade associations such as the AKI, which would assist in overseeing compliance.
When enacted, the new law will be a major departure from the current legislation in the sense that, at present, our insurance act is compliance based. The IRA sets the standards and requires that companies comply, but this is a reactionary approach to enforcement. Under the new act, the guidelines issued will be based on the kind of insurance and other related operational risks that a company is exposed to. It is designed in such a way that potential risks are identified well in advance and mitigating measures can then be put in place, thus avoiding problems before they occur.
How can premium undercutting be mitigated, particularly in the medical segment?
GICHUHI: The first thing the new insurance legislation will address is premium levels in medical insurance. The moment a company shows losses in that class, it will have to explain what measures are being taken, and whether the premiums charged are adequate. When we address that, it will fix part of the problem; however, fraud is also a major concern in medical insurance.
The New Insurance Act is expected to coincide with a sharp rise in medical premiums, while the growing uptake of group insurance schemes for white-collar workers will likely contribute to sustained medium-term growth. New technology, including biometric identification systems, is also expected to help reduce the incidence of medical insurance fraud in the sector.
Proper pricing of products and adequate employment of more advanced technology will bring down operational costs and help medical insurance companies. In addition, we must control fraud through the provision of proper means of identification for insured persons; you cannot cheat a biometric system.
Meanwhile, the country’s National Hospital Insurance Fund is also actively working to expand medical coverage to the poorest segments of Kenyan society. It recently introduced annual premiums set at just KSH160 ($1.8) annually for informal workers and their families. The expansion of micro-insurance products is also expected to bolster medical coverage in Kenya.
What are the expected trends for terrorism and political risk coverage?
GICHUHI: We see terrorism and political risk insurance continuing to expand. There is now a lot more awareness of the fact that businesses and individuals could potentially be exposed to terrorist attacks. Prior to 1998, we didn’t know or understand the extent of the threat; today it is common knowledge. The information is now available for anyone doing business in this market, making terrorism cover essential. Political violence was more of an issue before the April 2013 elections; now you’ll be unlikely to sell such coverage to many people. However, it will be more lucrative ahead of the 2017 Kenyan presidential election, as people will look back to the unrest surrounding the 2007 election. This insurance class is very much a cyclical category.
What opportunities does devolution pose to insurance companies at the local level?
GICHUHI: It is not a case of devolution providing opportunities that did not previously exist, but rather that it will provide insurance companies with devolved decision-making bodies. Formerly, if you wanted to sell insurance coverage to a government ministry, you had to travel to Nairobi and talk to senior officials. With 47 counties, you can now single out one and sell your products there independently. Decision-making processes have been devolved, and with this in mind, the rate of local insurance development is going to be a lot faster than it was under a centralised government.
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