IRA primes to steady insurance sector

By JOHN OYUKE

Insurance firms are globally synonymous with inefficiency.

They are known to be fast at luring clients to consume their products, but annoyingly slow at honouring claims, in case of a loss.

They are not an exception in Kenya — a fact that has left the market skeptical about them.

But the latest move by the sector regulator — Insurance Regulatory Authority (IRA) to keep players on a leash — is likely to change this skewed perception.

The body is planning to tighten regulation of insurance players. This will include guidelines that ensure reinsurance firms are adequately capitalised.

IRA Chief Executive Officer Sammy Makove says the move is aimed at strengthening underwriting muscles of primary insurers.

Makove says all insurers and re-insurers should submit their reinsurance proposals for general and long-term business for 2012 if they are to remain in business.

"Every re-insurer is required to file fresh details about their firms with us by mid November before we can renew their registration for next year," Makove, also the commissioner of insurance, said.

"Thereafter, all the insurers and re-insurers would be required to provide evidence that the 2012 reinsurance treaties are in place by December."

According to industry leaders, though reinsurance is a business activity between professional parties, policyholders would benefit indirectly through their insurers as the industry becomes more stable.

"Supervised reinsurance will bring more stability to direct insurance companies," says Kenya Reinsurance Corporation Managing Director, Jadiah Mwarania.

Adequately Capitalised

"This will effectively reduce the risk that policyholders will suffer financial losses or lack of insurance cover resulting from insolvencies," says Mwarania.

The move is also meant to allow direct insurers to handle claims promptly as they are given cover by reinsurance firms that are adequately capitalised and financially sound.

African Trade Insurance Agency (ATI) Chief Executive George Otieno says supervised re-insurers would contribute to financial stability for direct insurers.

Otieno says the financial soundness of reinsurers is key to the stability of the whole sector because it directly affects insurers’ ability to pay claims towards policyholders promptly.

IRA also wants insurance and reinsurance firms to forward their proposals together with reinsurance statistics for the last five and a half years.

In one of the format spelt out, the industry players are required to submit split estimated gross net premium income for fire domestic, fire industrial and any other class of business which would be covered under the same excess of loss treaty with the tax exempted classes.

"If you propose to underwrite either direct or local facultative reinsurance aviation business, you are required to submit the reinsurance proposals for aviation," says Makove.

Other details required alongside the proposals include information on inward acceptances from outside Kenya (excluding Africa Re and PTA Re).

The regulator says the details required should be in respect of inward treaties being renewed and any new treaties for the year 2012.

For non-proportional treaties, the minimum deposit premium as a percentage rate of premium should not exceed 90 per cent and where the premium rate is on sliding scale, it should not exceed 100 per cent.

The regulator has told the insurance providers to ensure they place business with financially stable, reputable reinsurers with at least a B credit rating from a reputable rating agency.

The insurance industry regulator has also recommended to the insurers and reinsurers to review the level of their retentions and treaty terms in the various treaties and improve them.

Contractual Obligations

"The treaty terms should be based on the minimum premium rates filed with this office and should contain a clause incorporating this as part of the contractual terms," Makove said.

According to the IRA Chairman Steve Mainda, the authority has proposed various amendments to the Insurance Act to protect policyholders.

Key among the amendments is the development of a new regulatory framework emphasising risks carried by an insurer rather than the current rule-based framework, which is a one-fits-all requirement.

The risk-based regulatory framework bases capital requirements on the amount of risks carried by a particular insurer and is bound to guarantee increased stability in the sector.

Insurers concede that settlement of claims has become an industry problem that needs to be resolved fast.

Pending Claims

Early last year, an officer at IRA confirmed that complaints over delayed payment of claims had shot up sharply in the past six months.

The Insurance Act law requires that all approved insurance claims be paid within three months, and empowers IRA to charge underwriters a penalty of five per cent on the outstanding amounts.

Inability to pay claims and accrued interest are among the grounds that can be used to petition the courts to wind up an insurance firm.

Some of the insurers, which have collapsed with billions of shillings in unpaid claims, include Access, Stallion, Lakestar and United.

Last year, Invesco Insurance was lifted from receivership and avoided taking the same route after Matatu Owners Association acquired an 80 per cent stake in the company.

High risk and delays in settlement of claims that Kenyans associate with the insurance industry has been blamed for the slow uptake of insurance policies in the country.