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Insurers’ joint political risk offer heralds cheaper premiums

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Demonstrators on the Kisumu-Busia road protesting the nomination of James Orengo to vie for Siaya Senate seat on an ODM ticket on Friday. Insurers have signed an agreement to pool payments for terrorism and political risks cover. Photo/Dan Obiero

Demonstrators on the Kisumu-Busia road protesting the nomination of James Orengo to vie for Siaya Senate seat on an ODM ticket on Friday. Insurers have signed an agreement to pool payments for terrorism and political risks cover. Photo/Dan Obiero 

By VICTOR JUMA

Posted  Sunday, January 20   2013 at  19:03

In Summary

  • 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.

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.

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