Motor vehicle insurance hits underwriters with Sh6.34b loss

A police officer at the scene of an accident where Matatu was involved in an accident at Sagana in Kirinyaga County. [Kibata Kihu, Standard]

General insurers have posted the worst underwriting loss in over two decades, weighed down by the near-doubling of losses from insuring commercial and private vehicles.

The latest Insurance Regulatory Authority (IRA) data shows that the underwriting loss—the difference between premiums collected and claims plus expenses paid—rose five times from Sh1.8 billion in 2020 to Sh6.34 billion last year.

“This was mainly attributed to high increase in underwriting loss in motor private and motor commercial classes due to relaxation of restrictions that had been imposed on travel due to the Covid-19 pandemic,” said IRA.

Heightened Covid-19 restrictions such as curfews and lockdowns in 2020 had cut travel activities as schools shut, many businesses scaled down and a majority of workers worked remotely.

Underwriting loss from commercial and private vehicles rose 74.5 per cent to Sh9.49 billion last year from Sh5.43 billion in 2020, reinforcing insurers’ push to hike premiums.

Private motor vehicles saw an 85.2 per cent rise in underwriting loss from Sh3.33 billion in 2020 to Sh6.17 billion last year, marking the tenth straight year of losses.

Underwriting losses from insuring commercial motor vehicles rose by 57.9 per cent to hit Sh3.32 billion, with the situation complicated by fraud and price undercutting as insurers battled for customers.

IRA says the industry could have made an underwriting profit of Sh3.15 billion if the motor business were to be excluded.

However, excluding the motor business would lead to a decline of 31 per cent of the overall general insurance business.

The loss ratio for motor private rose from 74.3 per cent to 85.8 per cent, meaning insurers were paying out Sh858 in claims for every  Sh1,000 collected as premiums.

Many insurers had earlier this year attempted to increase premiums in a bid to shield themselves from the rising losses, leading to legal battles with customers.

Kenya Human Rights Commission sued IRA, accusing insurers of unreasonably increasing motor vehicles premiums and declining to offer compressive cover for vehicles that are at least 12 years old.

General insurers last made underwriting profit from the private motor insurance class in 2011, raking in Sh279 million.

The underwriting loss for the sector came on the back of claims paid rising from Sh54.18 billion to Sh64 billion to overtake pre-pandemic levels.

Claims paid under the motor private class rose by Sh2.67 billion to Sh16.76 billion, while those of commercial vehicles rose by Sh1.09 billion to Sh13.41 billion.

The rising losses in the motor vehicle cover come at a time when claims ratios are worsening, with the sector banking on digital motor vehicle insurance certificates to cut fraud.

Insurers in 2019 launched digital motor vehicle insurance certificates to quicken the process of applying and renewing the covers and also to counter rampant fraud.

However, Association of Kenya Insurers Chief Executive Mr Tom Gichuhi cautioned late last year this would not be sufficient to put the brakes on losses in motor insurance.

“Premiums and claims are expected to go up as more Kenyans buy vehicles. But until some of these fundamental structural problems such as fraud and price undercutting are addressed properly, we are likely to remain in loss-making space,” said Mr Gichuhi.

Insurers have in the past cited cases of fraud in the form of fictitious accidents, multiple insurance contracts and claims on a single-vehicle.

Some motorists are also short-changing insurers by using their vehicles for purposes different from those insured against, meaning risk exposure is higher.