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Insurance industry still on the cross

FINANCIAL STANDARD
By JOHN OYUKE | May 22nd 2012

By JOHN OYUKE

Though the local insurance industry posted a 33.1 per cent growth in premium income, players in the multi-million shillings business are not off the hook yet.

According to the Economic Survey 2012, last year saw a marked rise in the number of people buying new insurance policies.

The survey notes that net premiums of the industry stood at Sh85.4 billion as at December 2011 while assets grew by 4.3 per cent to stand at Sh233.2 billion.

Investments by firms also grew by 2.1 per cent to Sh181.2 billion further compounding the industry’s good fortunes last year.

Abel Munda, Managing Director of CfC Life Assurance and current Chairman of Association of Kenya Insurers (AKI) Communication Committee attributed the strong showing to launch of new products and cost-cutting measures.

Last year also saw several insurance firms launch endowment funds, which have proven popular with the public.

“The industry also benefited from the intensified marketing campaigns by insurance firms and AKI — the industry body,” Munda said.

“We also received good support from the Insurance Regulatory Authority (IRA) through their awareness campaigns all over the country, which helped pool in more people.”

However, the sector is still grappling with huge claims, which threaten to push some firms out of business. Data from the Insurance Industry Annual Report 2010 shows that claims and benefits paid over the last five years have been increasing steadily.

The industry incurred net claims totaling Sh40.07 billion in 2010 compared to Sh30.66 billion in 2009, representing an increase of 30.7 per cent.

The survey warns huge claims compromise operations of most of the firms in general insurance.

General insurance firms any insurance not determined to be life insurance, including automobile and homeowners’ policies and provide payments depending on the loss.

The rising claims are eating into premium payment and fleshing out profit margins.

In response, insurers have recently lobbied to restructure payment of claims to stem fraud in the sector. Parliament has, however, severally rejected passing a law that would ordain this approach.

easy to litigate

But the biggest threat to insurers is hidden in the pages of the new Constitution, which lawyers say has stronger provisions in the Bill of Rights — and will ultimately give rise to a floodgate of litigation affecting firms.

Law Society of Kenya Chairman Eric Mutua says Companies need to manage risk from court cases arising from the Bill of Rights in the Constitution.

“In the old Constitution, one needed to leaf deep into the pages to justify say why he needs to be compensated, but today anyone can sue anybody for infringement of a right,” he warned.

“If proper risk assessment is not done,” Eric warned, “many firms would end up paying numerous awards due to the strengthened Bill of Rights and consumer protection laws.”

The insurance sector, while providing critical interventions and creating wealth through investments, has had its fair share of misfortunes with a number of companies closing shop and being eventually liquidated.

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