Kenyan insurance companies are battling for market control just eight months after a new law was put in place for importers to insure their marine business locally.
The secretary general of the Intergovernmental Standing Committee on Shipping, Ken Mwige, said the uptake of marine insurance has been compromised by price wars among underwriters, and the failure by the Kenya Revenue Authority to enforce the law as it focuses on short-term benefits.
Other EAC member states seem to be treading carefully to avoid the pitfalls facing Kenya.
Tanzania and Uganda are in different stages of adopting the policy, which compels importers to insure marine cargo with local companies. The two countries have started awareness campaigns and are putting in place systems and structures required for implementation.
The policy aims to save EAC countries $60.7 million that is repatriated to offshore insurers in premiums annually. Over the past seven years, an average of $425 million has been paid to foreign insurance companies.
Kenyan underwriters had hoped to benefit from the marine business estimated to be worth $220 million.
However, some companies set premiums as low as 0.05 per cent of the value of goods, increasing the number of transactions and the burden of claims.
Already, a number of insurance companies are showing signs of financial distress as claims from marine insurance outpace premiums.
Some underwriters are now calling on the Insurance Regulatory Authority (IRA) to step in and bring order in premium pricing.
In efforts to let market forces dictate the premiums, IRA only provided insurance companies with a guiding rate that largely borrowed from rates charged by foreign underwriters.
“The premiums being charged have left some companies unable to settle claims,” said Mr Mwige.
Industry stakeholders say that IRA needs to set the premiums at either 0.5 per cent or 0.75 per cent of the value of goods.
According to IRA data from the first quarter of this year, Britam was the leading marine insurer, with 11.8 per cent market share, followed by Jubilee Insurance and Kenindia Assurance, with 9.1 per cent and 8.6 per cent respectively.
During that period, the total marine gross income was $9.5 million and claims stood at $1.7 million.
Although 35 companies offer marine insurance in Kenya of the 49 registered underwriters, only a few transact business exceeding $1.9 million in gross premiums annually.
Importers who were opposed to the new law had raised concerns about the ability of local insurers to underwrite the complex marine business, considering their financial and technical capacity.
While premium wars are wreaking havoc on the books of underwriters, KRA’s failure to compel importers to procure insurance locally despite being the agency in charge of enforcement has contributed to the low uptake.
Under the new law, the taxman gets duty equivalent to 0.05 per cent of the insured consignment’s value.
However, under the former regime in which importers were subjected to cost, insurance and freight (CIF), KRA used to charge 1.5 per cent duty of the goods’ value.
Under pressure to meet revenue targets, KRA has been slow to create a seamless digital platform to make it easy for importers to insure locally.
“KRA is reluctant to push importers to procure insurance locally because it is assured of 1.5 per cent of duty under the old regime,” said Steve Kiboi, CEO of Sinbad Technologies, a software firm that has developed a marine insurance platform.