East African countries are moving towards adopting common regulatory standards to supervise the cross-border activities of insurance firms in order to protect policyholders and ensure stability of the insurance sector.

The insurance regulators in the region are seeking to apply similar rules to supervise companies in areas such as corporate governance, capitalisation, investment, stress testing, on and off-site supervision and winding up of insurance firms.

“This is an ongoing project, which is part of a wider programme of integrating the entire financial sector in the region,” said Betty Maina, Principal Secretary in Kenya’s East African Community Affairs.

In 2010, the regulators signed a memorandum of understanding agreeing on a plan to share financial data on the status of insurance firms and to co-ordinate supervision of insurers, which operate regionally with a viewing of reducing contagion risks.

The programme, which is being implemented under the East African Insurance Supervisory Association (EAISA) is part of efforts to harmonise insurance regulations within the EAC.

A study by Kenya’s AIB Capital Ltd shows that insurance penetration in the region has stagnated at below two per cent for decades.

Uganda and Tanzania have the lowest penetration ratios of 0.9 per cent each while Kenya and Rwanda have penetration levels of 3 per cent and 1.6 per cent respectively.
South Africa has the highest penetration ratio of 14 per cent.

Comparatively, EA’s insurance sector is one of the fastest growing industries in Africa with average annual premium growth rates of above 17 per cent, largely due to strong economic growth and rising income levels.

Though insurance sector in East Africa has huge potential, the region is currently characterised by low levels of insurance penetration partly due to lack of distribution channels for the rural population and lack of innovation.

Other obstacles include low levels of awareness, distrust and corruption.

The increasing rate of fraudulent claims particularly in the motor class has seen innocent policyholders face rising insurance premiums.

According to a survey by consultancy firm KPMG, fraud accounts for about 25 per cent of the total cost of insurance premiums in Kenya and 33 per cent of the price of insurance premiums in Tanzania.

In Uganda and Rwanda, it accounts for 10 per cent and five per cent of the cost of insurance premiums respectively.

Fraud, according to the survey, is executed by brokers, agents, employees and clients who collude with the internal staff of insurance firms.

The hotspot for fraud in the region is in the motor and medical claims.

READ: Insurance firms cry foul over rising fraud

Rising hospital bills and high incidence of fraud are eroding the profit margins of medical insurers as the uptake of medical covers remains relatively low.