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Insurers' loss on motor vehicle covers doubles to Sh7.3 billion

By Patrick Alushula | Jan 11th 2022 | 3 min read
By Patrick Alushula | January 11th 2022

Insurers have raised their premiums in a bid to shield themselves from the rising losses, leading to a legal battle with customers. [Kipsang Joseph, Standard]

Insurance firms’ loss from insuring motor vehicles doubled in the nine months ended September last year on increased travel activities, intensifying the push for increased premiums.

New data from the Insurance Regulatory Authority (IRA) shows that the underwriting loss - the difference between premiums collected and claims plus expenses paid - jumped to Sh7.31 billion from Sh3.52 billion in a similar period in 2020.

Underwriting losses from insuring private motor vehicles jumped by 120 per cent to Sh4.83 billion, while that from commercial motor vehicles rose by 87.3 per cent to hit Sh2.48 billion.

The latest losses from motor vehicle covers saw general insurers sink into a Sh4.13 billion underwriting loss - nearly five times more than the Sh879.3 million loss in the period ended September 2020.

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

The loss ratio for motor private rose from 72.1 per cent to 89.4 per cent, meaning insurers were paying out Sh894 in claims for every Sh1,000 collected in premiums.

Many insurers have this year raised their premiums in a bid to shield themselves from the rising losses, leading to a legal battle with customers.

Kenya Human Rights Commission has 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.

The private vehicle insurance class is on course to returning underwriting losses for the tenth straight year amid fraud and price undercutting as insurers battle for market share.

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

The combined nine-month underwriting losses for private and public vehicles surpass the Sh5.54 billion posted in the full-year 2020.

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

Insurers had also benefited from people staying away from hospitals for fear of contracting the virus, but this has been reversed, with medical underwriting profit dropping 77 per cent to Sh316 million from Sh1.37 billion.

Motor and medical insurance are the major classes for general insurers and accounted for 63.2 per cent of the Sh121.41 billion gross premium incomes under the general insurance business in the nine months ended September last year.

The underwriting loss for general insurers came on the back of claims paid rising by Sh6.56 billion to Sh46.97 billion to overtake pre-pandemic payments.

“Medical, motor private and motor commercial had the highest amounts of paid claims at 40 per cent, 26.8 per cent and 21.8 per cent respectively of total industry paid claims under general insurance business,” said the regulator.

The rising losses in the motor vehicle cover come against the backdrop of worsening claims ratio, with the sector banking on digital motor vehicle insurance certificates to cut fraud.

Insurers have in the past complained of rising 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, raising risk exposure.

The situation is made worse by price undercutting as the 36 insurers offering motor vehicle covers compete for customers. 

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