Underwriters cash in on mounting political anxiety

By John Oyuke

Insurance firms are betting on risks related to elections to sign up new clients.

Already, a number of them have rolled out political violence risk products and campaigns to tap into the hitherto slow market.

The economy has been wary of politics — taking a dip every election season. The 2007 General Elections were particularly telling of the relationship between politics and the country’s growth curve.

In 2007, the economy expanded by 7.1 per cent, marking the fifth year of consecutive economic expansion.

In 2008 however, the economy ebbed to 1.7 per cent — the lowest point under Kibaki presidency.  Besides the unfavourable international environment, much of the problem was fanned by violence, following the disputed presidential elections.

Economic fear

Several properties and investments went up in smoke. There was also massive capital flight as investors held back any further expansions.  

As a result of this destruction, policyholders lodged compensation claims totalling Sh1.2 billion with local insurers. This came about, at a time when political riots, terrorism and economic sabotage were then classified as non-insurable.

With another election around the corner, insurance firms that had stayed away from the cover are rolling out products targeted at investors increasingly seeking to shield their business interests.

The latest kid on the block, Kenya Orient Insurance Ltd, is already making known the existence of its new product – dubbed Orient Political Risk - through strategically located bill boards in the city.

The firm told Business Weekly the policy introduced quietly into the market two months ago covers business, property or assets should they be damaged or destroyed in the event of political violence or acts of terrorism. The cover takes care of previously excluded political risks in most insurance policies including changing global political landscape, political uncertainties and acts of terrorism and political riots.

The cover, however, will not be a stand-alone product but provided as part of policies already being offered by the firm.

Other companies offering insurance cover against political unrest are the multilateral insurer Africa Trade Insurance Agency (ATI), UAP Insurance, Jubilee Insurance and APA Insurance Company and Cannon Assurance.

UAP was the first to roll out the product in 2008. Jubilee followed in 2009 – signing a $384.6 million deal with (ATI) to provide cover to businesses in Kenya, Uganda, Tanzania, Mauritius, Burundi and Rwanda.

APA Insurance entered into another $434 million reinsurance deal with ATI in 2010 to give small and medium enterprises in Kenya and Uganda cover against political violence, terrorism and sabotage.

The insurance cover is provided as an added benefit to the firm’s policyholders in the two countries.

Cannon’s cover — the first stand-alone political cover in the market — to insure against terrorism and riots launched early this year, is backed by two reinsurance firms, Lloyds of London and Kenya Reinsurance Corporation.

Policy background

Political Violence, Terrorism and Sabotage insurance cover was first introduced in Kenya, in 2008, after a post-election assessment revealed a gap in the market, where billions of shillings worth of reported damage was uninsured.

According to a senior manager at the Nairobi-based ATI, since then, demand for political and economic sabotage cover from potential losses ahead of the forthcoming general election has been on a steady climb.

This has seen insurers raise their premiums for a cover that was largely unknown hardly five years ago.

Insurers providing the service are charging new customers far much more than when most of the policies were introduced three years ago in response to a gap exposed by the 2008 post-election demonstration and violence.

“The sharp growth in demand for political riots, terrorism and economic sabotage policies has been on opportunistic basis for which insurance firms have responded prudently by raising premium rates,” said Souvik Banerjea, senior marketing officer in charge of terrorism, political violence, and sabotage at ATI.

“High premiums are justified at the moment because everyone, including global insurance Lloyd, see Kenya as a flashpoint,” he said, adding that each firm has increased premiums according to individual risk assessment.

Subscriber numbers

Though the industry had hoped to attract a bigger volume of subscribers from 2009, industry players say the growth thereafter has been slow.

Demand only started picking after Kenya deployed troops in Somalia last October to flush out Al Shabaab militants and is likely to grow heading to General elections.

“From our portfolio, we have seen an increase in uptake of political risk insurance and covers against terrorism and sabotage of over 120 per cent in the last three years,” Jef Vincent, the Chief Underwriting Officer at ATI.

According to ATI’s Chief Executive, George Otieno, the firm’s gross written premiums reached $10 million last year compared from $4.8 million in 2010.

He attributed the growth to in part to increasing demand for political insurance risk cover.

“The exceptional growth stemmed from increased demand for Political Risk Insurance, which rose by 88 per cent and for Single Buyer credit risk insurance, which saw a dramatic increase of 682 per cent,” he told Business Weekly.