Insurers largely exist to help individuals and businesses mitigate unforeseen circumstances.
However, the unprecedented global Covid-19 pandemic has provided a moment of reckoning for the Kenyan insurance industry.
While policies that protect businesses against losses from pandemics might be non-existent in the country, insurers’ balance sheets are set to get hit heaviest this financial year.
For a good number of years now, local insurers have been making losses from their core business – underwriting – and the trend can only worsen. In the last four months – since the first case was reported in Kenya – premiums have tumbled down sharply as individuals and businesses cut costs.
Health and motor insurers have emerged the hardest hit in all the insurance classes.
By June, local insurers had paid over Sh120 million in Covid-19-related claims, according to the Association of Kenya Insurers (AKI).
The Insurance Regulatory Authority (IRA) has also noted that some firms are paying up claims of Sh10 million per person for Covid-related treatment.
Minet Kenya Chief Executive Sammy Muthui said the claims for Covid-19 have become “really severe” and unsustainable, placing the industry on high alert.
“On health insurance, the industry is on a high alert right now. Even those who’ve been accepting to accommodate the costs have to revise how they do it, otherwise their balance sheets will collapse,” Muthui told Financial Standard.
“The numbers have become too many and the average cost of care, especially if it’s Intensive Care Unit-related, is completely unsustainable,” added Muthui.
Interestingly, at the height of the measures to curb the spread of the virus, hospital visits had gone down.
Muthui said those savings for insurers have now been wiped out by the ballooning Covid-19 claims.
“The savings in health claims that took place earlier on are now being completely wiped out by the rising Covid-19 cases and the sheer high price around it,” he said.
At the onset of the pandemic and up to now, health insurers have been in the eye of the storm over Covid-related claims.
This has put the industry in a bad light, with clients crying of being abandoned.
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For Minet Kenya, which is the official insurer for teachers in the country, Muthui said the claims they’ve paid out are “significant.”
“Our position is that we are not leaving any of our members behind in regards to coverage,” he said.
AKI Chief Executive Tom Gichuhi had earlier said when the deadly virus was declared a pandemic by the World Health Organisation (WHO), it triggered a quick reaction by local insurers, informing the insuring public that claims relating to pandemics were not covered, whether expressly excluded in the policies or not.
“It is a global practice to have pandemics as an exclusion in medical and other related insurance policies. This is simply because it is a devastating catastrophe whose spread and the impact cannot be foretold,” he said.
Gichuhi further noted that Covid-19-related losses could not be priced as it was difficult to determine the duration and the impact of the pandemic.
“Risk analysts could not have predicted and still cannot accurately predict how long and what further impact the virus will have. Since the losses cannot yet be assessed, as the pandemic persists, they, therefore, cannot be priced,” he said.
On his part, Muthui said Minet had had to change its revenue growth forecasts this financial year.
“There’s been a direct shrinkage in business... insurance business follows the fortunes of our clients so if they aren’t doing well, so are our businesses,” he said.
Due to the layoffs and general hiring freeze, the growth of employee benefit covers has fallen sharply, including health, pensions, life, and personal accidents.
“Many businesses rather than laying off workers opt to reduce staff insurance benefits as cost-saving measures,” he said.
Minet, who are also pension administrators, say there has been an increased number of laid-off people withdrawing their pensions. “So we’ve seen an increase in early pension withdrawals because of the tough times and people having to leave employment earlier than expected,” he said.
Insurance covers that also depend on turnover or growth profits are performing badly.