Marine insurance in Kenya has fallen short of high growth expected by analysts due to undercutting by insurers.

Data from the Insurance Regulatory Authority (IRA) shows that premiums collected from the cover rose by 21.1 per cent in the first six months of the year against expectations of a tenfold growth.

A new law requiring all imported goods to be insured locally was expected to grow insurance premiums to about Ksh20 billion ($200 million) from the Ksh2 billion ($20 million) now collected annually.

As at June, total premiums collected under the marine cover were Ksh1.83 billion ($18.3 million).

“The performance has been below what we expected. We have commissioned a survey to find out whether it is the importers who are breaking the law or it is we who are underpricing,” said Tom Gichuhi the chief executive of the Association of Kenya Insurers (AKI).

Mr Gichuhi said the commission will also investigate whether international insurers who were in the business before the law changed have opened local outlets in the country allowing them to book the business and transfer it to parent companies abroad.

Market experts are however blaming the sub-par performance on undercutting in the industry and overestimation of the import business.

Insurers were relying on estimates as more than 90 per cent of cargo import insurance was previously handled by foreign firms. Importers were paying the premiums as part of cost, insurance and freight (CIF) to exporters who handled the underwriting.
The average cost of marine insurance is 0.5 per cent of the value of imported goods.

READ: Kenyan insurers battle for marine cover

Overestimation

“There was a gross overestimation of the expected business, and then the premiums fell below what is charged due to unhealthy competition as companies that had no experience in marine business came on board,” said Isaac Ngaru, an industry analyst and managing partner of Ngaru and Associates.

He added that some insurers are charging premiums as low as 0.25 per cent to get business.

Undercutting makes it difficult for reinsurers to cover businesses due to the high exposure involved.

The amount of reinsured marine business dropped to 20.9 per cent of total insurance at the end of June, from 31 per cent at end of December 2015.

More than half of the insurers recorded underwriting losses from the marine business, indicating that the premiums collected were not enough to cover the claims and expenses incurred to book the business.

Insurance companies also incurred costs installing new systems with access to an online portal, which was a mandatory requirement by AKI.

Claims incurred from the marine business more than doubled, to Ksh538 million ($5.38 million) in June 2017, from Ksh239 million ($2.39 million) in June 2016.
Top insurers lost some of their market share as competitors strengthened their marketing departments and new players came on board.

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