Insurers’ forum to discuss credit and political risk

Insurance companies across the globe are this week meeting in Nairobi to discuss credit and political risk insurance in Africa.

The forum, organised by the African Insurance Organisation, comes amid fresh calls from sector players that it should now review its covered risks to accommodate the changing economic and political climate.

Also to feature prominently in the three-day meeting is the strengthening and harmonisation of insurance laws to cater for cross-border investments.

Among the areas the continent’s insurers want exploited are the credit and political risks that have been on the rise, impacting negatively on business operations.

Over 300 delegates from 45 member countries of the African Insurance Organisation from Europe, the Middle East, Asia and Australia are expected to attend.

“This subject of credit and political risk insurance comes at a time when the continent continues to face the challenges of political risks, which the insurance industry has to address. In the light of the global economic crisis, there is a need to look into credit insurance,” regional director of African Reinsurance Corporation George Otieno told The EastAfrican.

According to Mr Otieno, political and credit risks have not featured much in the African insurance sector because the losses resulting from them are usually too large to be borne.

Such risks have thus been traditionally covered by special political risk insurance.

“Even international insurers have excluded politics from their covers because cumulatively they can result in the collapse of an insurance company. The general feeling is that many African countries are politically unstable. As a result, the chances of occurrence of such risks are high. Since the law of large numbers does not apply in such a cover, businesses seeking such covers have been compelled to pay higher premiums,” Mr Otieno said.

The exclusion of these risks, which industry players say have huge balance sheet potential to insurers, have resulted in the dismal performance of many of them.

With the exception of South African companies, other insurers contribute marginally to national gross domestic products.

Analysts say there is huge potential in credit and political risks.

However, the sector has been rocked by many challenges including inadequate financial capacity, lack of financial rating as well as poor infrastructure.

Currently, a number of private and public insurers provide cover for political risks.

Among the most popular is the Multilateral Investment Guarantee Agency, a member of the World Bank group that provides insurance to investors in the emerging and developing markets.