Kenyan medical insurance management firms with a regional presence have, for the fourth time in a row, posted losses. They blame the trend on escalating hospital bills and the high incidences of fraud, even as the uptake of medical cover remains low.

Figures from Kenya’s Insurance Regulatory Authority (IRA) show that the sector posted a loss ratio of 76 per cent in the third quarter of last year across the 18 firms offering medical insurance covers.

Despite the premiums growing to $250.79 million in that quarter as compared with $222.4 million over the same period in 2015, losses grew to $5.37 million.

Data from IRA shows that 13 of the 18 firms offering medical covers posted losses, meaning that they paid more claims than the premiums they received.

The insurance firms say that the medical claims have consistently exceeded the segment’s premiums, while management fees attributed to agent and broker commissions, as well as price undercutting, have also been blamed for the dwindling net revenues.

Association of Kenya Insurers chairman Patrick Tumbo blames the industry losses mainly on fraud.

“It is estimated that 20 per cent of medical claims are fraudulent. We have seen instances of alteration of documents to increase the claimed amount, concealing pre-existing medical conditions, falsified prescriptions or over-prescription of drugs and even identity theft by non-members using insured members’ details,” said Mr Tumbo.

“Our members are currently mitigating this by use of biometric systems to authenticate a member visiting any facility for treatment.”

High medical costs

High fees charged by service providers is also to blame for the perennial losses. A 2016 price adjustment by the Kenya Medical Practitioners and Dentists Board saw the cost of procedures such as maternity delivery (normal and caesarean) as well as charges for general practitioners and consultant increase by 20 per cent from the last review in 2013.

Jubilee Insurance head of medical insurance Catherine Karori said that medical service providers are increasing their costs every year by an average of 15-20 per cent.

“We are struggling with rising costs of pharmaceutical products, outpatient consultation fees and bed charges. We are now in a dilemma as we are struggling to cover the additional expenses without increasing our premiums,” Ms Karori said.

“When management fees, which include commissions to the agents and brokers and office expenses are factored in, most, if not all of the net earned premiums are wiped out.”

According to Mr Tumbo, on average the more common procedure costs went up by up to 26 per cent, which is way above the inflation rate of 6 per cent despite the fact that this review was last done three years ago. 

“Drug costs and other utilities in the hospital that are imported are dependent on the dollar rate which also affects the predictability of the cost of treatment,” he said.

Underwritten premiums

The sector has however recorded modest growth in the underwritten premiums on medical, from a low of 10 per cent growth in 2012 to the current 15 per cent, but players blame price undercutting, poor education and inflation for this minimal growth.

“The price wars by novice players undermine the sustainability of health insurance, which the regulator is strongly monitoring as this has on overall effect on the industry performance,” said Mr Tumbo, adding that the lack of monitoring of private healthcare by governing bodies is also to blame.

The insurance industry has been complaining for years about cut-throat competition that in many cases involves undercutting prices. However IRA acting chief executive Godfrey Kiptum said that the trend of losses within the medical business segment cannot just be blamed on undercutting.

“It is a supply and demand business so I don’t understand how undercutting affects them. However, fraud has been an issue that we, through the Insurance Fraud Unit, are trying to crack down on,” said Mr Kiptum.