Few accident claims rake profits for insurance firms

An initiative to grant incentives to vehicle owners less prone to accidents by charging them lower insurance premium and penalising those filing claims through high premiums is paying off to the insurance industry.

For the first time in a decade, the industry posted profits for its underwriting business last year attributed to tight regulations by the market authority.

Statistics released by the Association of Kenya Insurers (AKI) in Nairobi on Monday, shows that the private motor insurers made an underwriting profit of Sh320 million in the year 2011 compared to a loss of Sh900 million in 2010, representing 135.6 per cent growth.

AKI’s executive director, Tom Gichuhi said that the positive results were due to the adoption of No-Claims Discount (NCD) by the insurance market in March last year, where car owners are entitled to a premium discount if no claims are made but regular claimants are penalised with a 7 per cent increment on their premiums.

“Car owners are nowadays careful on the roads to avoid the penalties arising from frequent claims while targeting the discounts. This has projected the profit growth in the sector to unprecedented heights after years of losses due to significant drop on accidental claims from recklessness on our roads,” he said.

The gross written premium by the industry was Sh91.6 billion in 2011 compared to Sh79.06 billion in 2010, which was a growth of 15.9 per cent.

Penetration of insurance grew from 3.10 per cent in 2010 to 3.02 per cent of the country’s Gross Domestic Product (GDP) in 2011, a stagnant growth attributed to traditional methods of distributing the insurance products.

The Chief Executive of Insurance Regulatory Authority (IRA) Sammy Makove has urged the market stakeholders not to rely on the penetration rate in terms of financial figures, but by number of people that have been insured.

“Let us strive to increase our penetration percentage per capita instead of getting fixated to GDP figures. It would be prudent to increase our covers to the large uninsured population instead of relying too much on its market share,” he said.

The overall industry posted a 0.3 percentage loss in its underwriting profits by registering Sh7.78 billion last year compared to Sh7.8 billion in 2010, which was blamed on the economic hardships during the currency-induced inflation in the county.

Medical insurance industry had the largest losses after posting Sh650 million last year, which was a 22.6 per cent drop from Sh530 million losses that was registered the previous year, due to undercutting of premiums and imprudent underwritings according to Mr Gichuhi.

Net claims for last year totalled Sh25.5 billion compared to Sh22.5 billion in 2010, representing 13.3 percentage increase while total assets held by the industry increased by 10.3 per cent to Sh230.76 billion in 2011 compared to Sh209.48 billion recorded in 2010.

During that period there were 45 licensed underwriters in the country, out of which 22 wrote non-life insurance services, 9 offered life covers and only while 14 were composite services.