Fear of election violence drives up political risk cover to Sh40 billion
K-Rep Bank former headquarters in Kawangware, Nairobi. The bank reported Sh494 million loss in 2008 largely attributed to effects of post-election violence. Banks were among the most affected by the mayhem after customers they had given loans were unable to repay following destruction of their property. Photo/FILE
What you need to know:
- Banks, telcos and contractors lead the list of those taking insurance cover, with many analysts predicting a peaceful poll if there will be no runoff
Fear of violence during and after the March 4 General Election has seen an uptake of insurance against political risk by businesses in the country increase by more than 3,000 per cent.
According to Africa Trade Insurance Agency — one of Kenya’s main reinsurance company for political risk — the insurance cover taken stood at over Sh41 billion by December 2012 against Sh1.3 billion taken in 2008.
“There is a growing increase in demand for political risk covers,” ATI senior marketing officer Souvik Banerjea said yesterday at a press conference in which he discussed the impact of the coming election on businesses.
The premiums are expected to go up this year.
Most of the businesses taking the cover are banks, telecommunication firms and contractors handling big infrastructure projects.
Small insurance companies have also increased the amount of businesses they are reinsuring as a way to transfer some of the risks.
Under political risk, companies are mainly seeking to protect themselves against adverse and unpredictable political decisions — including nationalisation of businesses and foreign exchange controls that are associated with regime change.
Kenya’s next General Election will be on March 4. The poll is expected to bring in new leadership and a different form of governance, raising the country’s political risk profile amid terrorist threats.
Largely expected to be peaceful in the first round, analysts warn of potential flare-ups should there be no outright winner, forcing a runoff.
“(Year) 2007 was a learning point for many businesses and they are now compelled to have their investments insured,” Kenya-Re managing director Jadiah Mwarania said.
Letters of credit
Banks are said to be insuring loans, discounted invoices and letters of credit offered to businesses to the tune of Sh4.5 billion.
Banks were among the most affected, after customers they had given loans were unable to repay following the destruction of businesses in the 2008 post-election violence.
International contractors and supplies fear that a new government might fail to honour debt obligations already accumulated, as it happened in 2002.
Estimates put the loss at over Sh72 billion in properties destroyed and lost business opportunities.
Among the insurance companies offering political risk covers are UAP, Jubilee, Heritage and APA.
The increase in cover uptake has pushed the Association of Kenya Insurers (AKI) to form a conglomeration of 20 local insurance firms to help manage the situation.
