Insurers’ joint political risk offer heralds cheaper premiums

What you need to know:

The insurance pool will allow individual insurance firms to offer a discount on the cost of political risk cover due to the reduced exposure and additional muscle to negotiate lower premiums with re-insurers.
A number of insurers such as Chartis, Jubilee, and CIC Insurance have been offering the covers independently but at a higher price.

Kenyan companies are set to enjoy cheaper premiums for political and terrorism covers after 20 insurers signed an agreement to pool policy payments and share risks from next month.

The companies will receive premiums from policy holders and place in one kitty to meet the cost of claims in a move aimed at lowering the risks for the individual insurers.

This would also allow individual insurance firms to offer a discount on the cost of political risk cover due to the reduced exposure and additional muscle to negotiate lower premiums with re-insurers.

A number of insurers such as Chartis, Jubilee, and CIC Insurance have been offering the covers independently but at a higher price while others have avoided the products.

“The pool will be in place in February before the General Election. It will offer more competitively priced premiums than has been the case,” said Tom Gichuhi, an executive director of the Association of Kenya Insurers.

“The larger pool will offer the ability to manage the risks better and a bigger muscle to negotiate for favourable re-insurance premiums.”

Formation of the insurance pool comes at a time when the country’s risk profile has been rising in the past two years from increased terrorist attacks and fears over the March 4 General Election.

Agencies for the Lloyds of London — the largest re-insurer of big-ticket risks in Kenya — have maintained the country’s risk at about four points since 2011 compared to 2.5 points in 2010.

A rating of five signifies maximum risk, four (high risk), three (medium risk), two (low risk) and one minimum risk. This means that the country is rated as highly dangerous, at par with war-torn and unstable Middle East and northern Africa states.

READ: High risk profile raises cost of insurance for Kenyan firms

The perception has sparked a rush for political and terrorism covers, with the premiums rising by between 50 and 200 per cent for new policies last year.

The main casualties of the higher risk perception include banks, media houses, critical government installations and establishments close to US and Israeli embassies that have been singled out as high risk targets.

“Premiums for insuring and reinsuring these risks have risen because demand is rising while capacity is low,” said Souvik Barnejee, a manager at African Trade Insurance Agency (ATI).

The agency, a pan African political risk reinsurer, last year recorded a 20 per cent growth in premiums from the Kenyan market to $470 million (Sh40.4 billion), underlining the rising demand for the covers.

The 20 insurers forming the pool said it would significantly boost their capacity to take on risk and pay out claims besides negotiating for lower reinsurance rates.

“Reinsurers have been offering us rates on a take-it-or-leave-it basis. This will change,” said Nelson Kuria, the CEO of CIC Insurance which is in the pool.

Kenya Re, ATI and Swiss Re are some of the reinsurers taking risks from the local insurance firms and are expected to offer relatively cheaper rates to the insurance pool.

Companies participating in the pool are expected to raise competition against non-member rivals in the nascent political and terrorism insurance market. This is expected to benefit clients as rivals fight to offer competitive rates from greater efficiency.

APA Insurance, which is not in the pool, for instance, said that it is able to source for competitive reinsurance directly from the Lloyds of London, giving it headroom in pricing.

“We don’t see the pool having a pricing advantage over us,”’ said chief executive Ashok Shah.