Anti-competition fine by CAK alarms insurance firms

Insurance firms have been spooked by the competition watchdog’s decision to penalise re-insurance companies for colluding to set minimum premiums chargeable on customers.

The Competition Authority of Kenya (CAK) on Wednesday said it had fined the Association of Kenya Reinsurers (AKR) Sh721,000 for setting minimum rates to insurance companies tendering to offer group life cover to National Intelligence Service (NIS) employees.

Insurers are now calling for discussions between CAK and the Insurance Regulatory Authority (IRA), which sets the industry’s minimum charges, on the long-standing practice that the competition agency has labelled as being anti-competitive.

“The two State bodies need to discuss this matter, paying keen attention to what effect removal of the minimum premiums would have on both the insured and the insurers,” said Tom Gichuhi, the executive director for the Association of Kenya Insurers (AKI).

“Minimum premiums were scientifically set by actuaries to not only ensure that insurance companies do not exploit their clients, but also to see to it that insurance companies remain healthy and are able to pay claims whenever they arise,” he added.

The CAK said it plans to institute a compliance programme to abolish minimum charges that associations set for members in a move which, if implemented to the letter, could affect profit margins in the insurance industry.

READ: Reinsurers’ body fined Sh721,715 over price fixing

The IRA currently sets minimum premiums for insurance policies in the industry. For instance, the minimum premium rate for private motor vehicles is four per cent while that for public service vehicles such as matatus and buses is fixed at 7.5 per cent of the car’s value.

“We are in communication with the CAK on matters pertaining to issues of mutual concern between the two institutions,” said IRA’s chief executive officer Sammy Makove in response to queries on what the insurance regulator was doing to resolve the stalemate.

Increased competition has seen insurance companies resort to undercutting – charging lower than minimum set premiums – as a strategy to woo customers and increase the uptake of their products.

The IRA said the practice of undercutting is rampant and poses a “serious threat” to the profitability and attractiveness of Kenya’s insurance sector. Twelve insurers reported underwriting losses in 2013.