Westgate attack exposes firms to higher premium bill

Even as the dust settles on the Westgate Mall attack, attention is now shifting to whether the country’s business infrastructure has the ability to sustain losses linked to terrorism and natural disasters.

The Saturday siege at one of Nairobi’s upscale shopping malls that saw Al Shabaab militia in a standoff with Kenyan security forces for three days led to loss of more than 67 lives and caught the country almost flatfooted.

Among the over 80 establishments premised in the mall were commercial banks, eateries, coffee shops, clothing stores and jewellery franchises. The country is now coming to terms with the devastation that insurance experts are saying could carry a hefty bill of Sh10 billion.

The Association of Kenya Insurers yesterday clarified that motor vehicles damaged at Westgate attack may not qualify for compensation, Tom Gichuhi, the association CEO, however, indicated that insurers may compensate the motorists out of compassion depending on relation they enjoy with the provider.

Industry insiders are now warning that insurance covers are likely increase given the magnitude of claims linked to major disasters.

Mr Abel Munda, the managing director of CFC Life, says insurance against acts of terror has not been new into the country, only that the uptake has been muted. “We have traditionally had insurance cover against acts of terrorism in the industry which is often under political risk,” he explained.

“However, many firms have not been taking this up because of the view that risks such as terrorism and political violence appear low in Kenya.”

Munda, however, reckons the three-day standoff between alleged Al Shabaab fighters and Kenyan security forces at the Westgate Mall has tended to increase interest in insurance cover against acts of terror.

“We have since had several companies call in to inquire and request quotations for insurance against terrorism and this trend is bound to rise.” The Westgate terrorist attacks that came barely a month after a huge fire destroyed the arrivals terminal at Jomo Kenyatta International Airport (JKIA) has further cast the spotlight on the country’s exposure to risk. The fire at the JKIA is said to have cost over Sh500 million, with Kenya Airways alone reporting that it had lost Sh340 million in revenue.

Two years ago over 100 Kenyans in the slum settlements of Sinai in Embakasi lost their lives when a pipeline belonging to the Kenya Pipeline Company burst into flames and residents attempted to scoop the fuel.

Aside from the massive loss of life, Kenya Pipeline is said to have lost 19 million cubic meters of petroleum products worth several million shillings. The post-election violence that followed the contested 2007 general elections is estimated to have cost the economy about Sh500 billion.

Kenyan businesses are now re-thinking of taking up insurance against political violence and terrorism to insulate themselves against hefty loses.

At the height of the violence, the country saw protracted acts of vandalism, looting and arson on private and public businesses that was sustained for the better part of January and February. The rise of acts of piracy off the coast of Somalia linked to Al Shabaab  militia also hiked the cost of marine.

Passing on costs

Shippers who had to obtain extra security from naval forces to escort cargo and cruise ships off the coast of Somalia passed on the added cost on the suppliers resulting in increase in the retail cost of various imports.

However, investment analysts are stating that the economy is more resilient and will withstand this hiccup in the long-term. “Investors who bet their money on Kenya are still convinced that the country’s investment outlook for the long-term remains promising especially with the discovery of oil,” states Mr John Kirimi, the managing director at Sterling Investment Bank.

“While the attack on Westgate could have a short-term effect on tourism and those directly invested in the mall, the impact to the economy will not be very profound. Investors understand that terrorism activities can happen anywhere and they will not withdraw because of sporadic incidents”

Mr Tom Gichuhi, the executive director of the Association of Kenya Insurers, echoes his sentiment.

“The terrorist attack, although unfortunate, does not mean that the country’s risk profile should change,” he explains. “This is because when you are calculating the risk profile of an economy you take many factors in mind and sustained over a long period of time.”

Kenya, he argues, had not had repeated terrorist attacks with the last incident witnessed way back in 1998 bombing of the US embassy.

 


 

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