Boda boda insurance: Will underwriters make money by the ton or burn their fingers?

Boda boda rider being assisted to get up at Kenol, Nakuru, after he was knocked down by a matatu, September 16, 2019. [Kipsang Joseph, Standard]

The insurance industry is cautiously warming up to the proposal of compulsory third-party insurance for commercial motorcycles and three-wheeled vehicles.

And insurers have all the reasons to be cautious. They have not had the best of times in underwriting private and commercial vehicles.

Now there are talks of companies insuring commercial motorcycles against a backdrop of startling accident statistics, untrained riders and weak enforcement of road regulations.

“This will come with increased premiums. That is good news. But unfortunately, that is not where the story ends,” says Association of Kenya Insurers (AKI) Chief Executive Tom Gichuhi.

“Insurers have a host of things to think through at the point of underwriting, admitting and paying claims. Not just to jump in and then start crying foul when claims start coming in droves,” adds Mr Gachuhi.

With back to back underwriting losses in motor insurance, insurers are justified to be cautious when underwriting boda bodas (commercial motorcycles) and three-wheelers or tuk-tuks as they are commonly referred to.

Fraud, poor pricing and high claims have rocked the motor class of insurance, condemning insurers into losses. Now there is a possibility of a new headache.

The Insurance Regulatory Authority (IRA) has set in motion the amendment of rule three of the Insurance (Motor vehicle third party risks) (Certificate of Insurance) Rules, 1999.

“The authority’s intention to initiate this amendment is with a view that all motorcycles (including boda bodas) and three-wheeled vehicles (including tuk-tuks), used in the business of transporting fare-paying passengers will have compulsory third-party insurance,” says IRA.

This should be music to the insurers’ ears given that the number of motorcycles in the country has been rising over the years since the government relaxed import taxes.

But Mr Gichuhi says insurers will have to approach this area carefully so that it does not grow into another headache as has been the case with motor insurance.

Underwriting losses from motor private insurance jumped 120 per cent to Sh4.83 billion in the quarter ending September 2021, while that from commercial motor vehicles rose by 87.3 per cent to hit Sh2.48 billion in the same period.

The private vehicle insurance class looks set to post underwriting losses for the 10th straight year, with the situation complicated by fraud and price undercutting as insurers battle for customers.

Many insurers have been underwriting motorcycles but only limited themselves to those owned by individual or corporate entities. Such policies, including that of Heritage Insurance, have been excluding commercially used ones, stating that the policy does not cover “the risk of use of the motorcycle as a public service unit (boda boda).”

Kenya National Bureau of Statistics data shows annual registration for motorcycles and tuk-tuks has been rising over the past five years to 2020.

About 246,705 motorcycles were registered in 2020 compared to 2016 when new registration was 119,724.

Kenya has no designated schools to train motorcyclists. [File, Standard]

Three-wheeler registrations for 2020 stood at 5,896 compared with 3,815 that were registered in 2016.

Motorcycles have grown to be a popular means of transport in the country, especially for people seeking to escape traffic jams or get deliveries such as food and medicine done within a short time.

Their acquisition cost, averaging about Sh60,000, has enabled many youths to beat unemployment in an economy where colleges are churning out more graduates than the job opportunities being created.

Several companies have set up assembly plants in Nairobi and Mombasa to plug into the growing demand of brands such as TVS Honda, Boxer and Yamaha.

But the number of accidents has been alarming—a statistic that insurers cannot ignore. National Transport and Safety Authority (NTSA) data showed 1,634 motorcyclists were killed last year—the highest fatalities on Kenyan roads followed by pedestrians (1,477).

Kenya has no designated schools to train motorcyclists, and Mr Gichuhi says “discipline is foreign in this sector,” adding to the risk of accidents and therefore higher claims.

“We are likely to see a big increase in claims since a lot of motorcycles are involved in accidents. It is also going to enhance the level of ambulance-chasing,” he says. Ambulance-chasing is where law firms send people to an accident scene to convince the victims to seek damages for personal injury.

“Insurers will have to sit back and ask: what is the level of risk here? What kind of premium should I charge? Motorcycles are almost permanently on roads, and that means increased exposure to accidents,” says Mr Gichuhi.

The operating hours for motorcycles and tuk-tuks are in contrast with those of private vehicles and matatus, which tend to be mostly used early in the morning, midday and late evening.

A study by Car & General (C&G)—a listed firm that sells motorcycles, their spare parts and other engineering equipment—puts the cumulative number of motorcycle riders in Kenya at 1.2 million.

“There are 1.2 million riders in Kenya. Nine out of 10 are used for commercial purposes, representing over one million jobs created,” says the C&G report.

Police officers impounding a motorcycle in Kisumu, March 9, 2022. [Collins Oduor, Standard]

A compulsory third party insurance will mean riders parting with some of the money they have been booking as profit.

C&G estimates that each rider makes an average of Sh1,000 per day from an average of 15 rides, translating into a monthly income of about Sh30,000.But the high number of self-trained riders may be a headache for insurers given that a driving licence is one of the key requirements for customers seeking motor policies.

This, added to accident statistics and the fact that many motorcycle operators run their operations nearly around the clock could tempt insurers to charge higher premiums.

While IRA has been sensitising riders on steps towards the rollout of this cover, Boda Boda Safety Association of Kenya, the lobby for commercial motorcycle riders, says more needs to be done.

The chairman of the lobby, Kevin Mubadi, says the association supports the third-party cover but is worried that many insurers may be fast to collect premiums but drag their feet in honouring claims.

“What we want IRA to do is to make sure these insurance companies pay people. We don’t want to give them money then when accidents happen, they get complicated. We don’t have the resources to go to court seeking claims,” said Mr Mubadi.

But insurers say the riders will also have to play by the rules. NTSA in 2016 introduced rules for motorcycle riders, but enforcement has been weak, contributing to accidents.

Under the rules, a motorcycle rider is not allowed to carry more than one ride pillion. It is also mandatory for both to use helmets and reflective jackets.

The regulations only allow children aged 12 and below to be carried together with an adult but makes it illegal to carry a pillion and a load at the same time.

“Riders may have to demonstrate that at the time of the accident, the driver was a licensed rider and had helmet as well as passenger. If at the time of the accident these aren’t there, insurers may not admit the claim,” said Mr Gichuhi.

He adds that insurers are likely to also demand that riders only carry one passenger, with both of them wearing helmets—something that is currently a rarity for the industry.

Overloading, overtaking on the wrong side and driving in the opposite direction on one-way roads are common with riders.