Insurers plan political risk pool ahead of elections

Kenya's insurance companies will form a political risk insurance pool this month to tap into the increasing demand for political related insurance services, industry officials said.

Africa Trade Insurance Agency (ATI) will be the administrator of the insurance pool, the agency's chief executive George Otieno said in an interview with Xinhua on Thursday.

"We are guiding the companies to form the insurance pool and will be assisting them to run it to avoid the pool running into losses," said Mr Otieno.

The fund is being formed under the leadership of the Association of Kenya Insurers (AKI). According to AKI, 20 insurance companies will form the pool.

Kenya has 45 registered insurance companies according to the Insurance Regulatory Authority (IRA). ATI will also offer reinsurance services to the pool.

The pool is expected to start functioning in February ahead of elections on March 4.

The intention is to have a facility that offers affordable political risk insurance services even to small and medium-scale businesses that may not afford premiums charged by bigger insurers like ATI.

The idea of the pool was mooted in 2009, a year after the post-election violence. In addition to business process disruption that happened during the violence, the premises were damaged and looted.

At that time, Kenya insurers did not offer political risk insurance products meaning that many of the businesses were not compensated bringing an end to many companies.

Businesses are now avoiding such losses which explains the increased demand for political risk insurance by 50 per cent in 2012 compared to 2011.

During that time, ATI doubled its premiums derived from political risk products to Sh407.7 million ($4.7 million) in 2012 compared to Sh 199.5 million ($2.3 million) in 2011.

Underwriting by other insurance companies on the same product also increased although AKI could not provide the exact numbers. Kenya's political risk insurance pool is borrowed from a model that has been used in South Africa for over 30 years.

South Africa has its own 30-year-old pool known as the South African Special Risks Insurance Association (Sasria), which underwrites political risk insurance products. Sasria had expressed interest to help Kenya set up its own pool.

Political risk insurance is seen as crucial in attracting domestic and foreign new investments as it gives investors assurance that their investments will be repaid in the case of violence.

Kenya has had a cycle of political violence every elections year, usually after five years, but is working on ending this cycle.

The political risk insurance is also crucial in a country like Kenya where micro, small and medium scale businesses dominate the economy. Such businesses are always vulnerable and any effect on their cash flow may lead to collapse. Owners also find it difficult to raise new money especially when they have to even rebuild premises.