Dive into high seas to fish out business for insurers sparks storm

 

The marine insurance sector is facing its own version of the ‘2016 Banking Amendment moment’ that forced banks to cap borrowing rates.

The fight to compel importers and exporters to get local marine cargo cover by January next year has pitted manufacturers and shippers against insurers, who are backed by the Government.

The two sides are selling anxiety and confidence in equal measure as they haggle over an anticipated Sh20 billion in additional annual gross premiums.

The marine insurance sector is facing its own version of the ‘2016 Banking Amendment moment’ that forced banks to cap borrowing rates. PHOTO: COURTESY

Sector players are yet to agree on whether Section 20 of the Insurance Act should be implemented come January, or if it should be postponed or staggered.

“We are very ready; there is no need for postponement. If Jubilee Insurance alone can handle most of the cover, what if we add a few others to form a consortium for the bulk ones? No shipping line can exhaust the covers we have here,” Association of Kenya Insurers (AKI) Chairman Patrick Tumbo said.

But the Kenya Association of Manufacturers (KAM) insists local firms lack capacity in terms of capital and scope – including to cover terrorism and piracy, automate provision of marine insurance services, and ensure adherence to regional and international legal instruments on free trade.

KAM also says the implementation of Section 20 of the insurance law has been rushed before configuring insurance services to the Kenya National Single Window System and Kenya Revenue Authority (KRA) online portals.

The association adds that there are no regulatory systems in place to ensure premium and price controls, as well as timely settlements of claims. KAM wants the law postponed to allow for stakeholder negotiations

Shippers, on the other hand, are pushing for staggered implementation of the policy on smaller cargo before graduating to bulk cargo, such as petroleum and grain.

Protect revenues

AKI, however, said local insurers have already insured some containerised cargo, save for edible oil, petroleum and bulk grain.

“Those who are resisting this move are the big multinationals who want to protect revenues back home. Most of them use their own insurers – like American companies insure with AIG, Germans with Allianz and the British with Prudential. They want the money to go back,” Mr Tumbo, who is also Jubilee Insurance’s CEO, said.

He added that local players would not take home the entire pie, as they would have to re-insure with global players, passing on part of the profits while growing their own books.

“We also want to keep part of the revenue – let us keep 40 per cent and they can get 60 per cent from reinsurance businesses,” he said.

Tumbo also dismissed claims that local insurers lack the capacity to underwrite marine cargo insurance.

Trade analysts TradeMark East Africa point out that the insurance industry recorded gross written premiums of Sh173.8 billion in 2015, and its asset base increased 11.5 per cent to Sh466 billion, showing its capacity to absorb the new line of business.

Waturi Matu, the director of business environment at TradeMark, said Kenya’s insurance industry is experiencing increased mergers and acquisitions through buyouts and consolidation that would make local players even more competitive.

She added that many local firms are reinsured overseas and have good ratings by international standards.

Pass on risks

“On capacity, one cannot take on more insurance than they can handle, and in fact we pass on the risk to reinsurance companies,” Tumbo added.

The head of insurance at KPMG East Africa, James Norman, added that while not all players had the capacity to take up the high risk-high return business, there were serious pan-African and internationally linked players in Kenya’s market that are up to the task.

“Capacity is not a blanket thing ... this is, however, also a good opportunity for consolidation and foreign support to improve operations, human resource and processes, which is a good story for the country,” Mr Norman said.

Insurance Regulatory Authority (IRA) boss Sammy Makove added that his agency had no concerns about capacity as the business line is well structured with international underwriters and re-insurance.

He added that IRA had put in place a requirement for companies to raise their capital based on their risks, which would strengthen the players in the market and ensure they are able to meet claims.

“Those who will want to do more risky business will have to carry more capital, according to the risk-based capital rule. The question of capacity is not there as some of these local insurers have been covering energy products in Olkaria,” he said.

Insurance penetration

According to AKI’s annual report, marine insurance was one of the classes that received the least claims last year, and was the fourth most profitable line after theft, personal accident and motor commercial covers.

The Treasury is pushing for the implementation of the law to increase insurance penetration and collect revenues from growing business. Insurance penetration last year was 2.79 per cent of GDP, a clear indication of the untapped opportunities in the sector, and the need to diversify its products, which is where marine cargo cover comes in.

Sanlam and Old Mutual have already announced they are ready to offer the cover, while Tumbo said Jubilee Insurance’s marine cover is offering warehouse-to-warehouse cover, including inland transit, while most other options give port-to-port cover.

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