Insurers bank on marine cover to grow their premiums
A ship docks at Mombasa port. Insurance firms are counting on a rule that restricts getting marine foreign cover to grow their returns. PHOTO | FILE
What you need to know:
New rule meant to restrict procurement of foreign policies unless in special circumstances.
Local firms are looking to significantly grow their marine insurance premiums from the next half of the year as maritime sector players race to seal revenue loopholes.
A team set up by the sector to create modalities of implementing a rule that restricts foreign procurement of marine insurance, has said it will meet the July 1 deadline.
“The national steering committee has demonstrated commitment to ensure compliance with the law while aligning our interests as government, regulatory authorities, sector participants and industry stakeholders” said Shipping and Maritime Principal Secretary Nancy Karigithu.
Kenyan waters are served by foreign ships which control up to 95 per cent of the country’s imports and exports. Last year, Kenya’s external trade hit Sh2.16 trillion but the local insurers earned Sh2.7 billion in marine insurance premium.
Insurers have for a long time blamed the low uptake of their products on poor implementation of laws that restrict foreign procurement of services.
In this year’s Budget, Treasury directed the Kenya Revenue Authority (KRA) to enforce a rule which prohibits placement of Kenyan business with foreign insurance firms “except under special circumstances.”
A committee formed to work out modalities of enforcing the law draws its membership from KRA, Insurance Regulatory Authority (IRA) and the Kenya International Freight and Warehousing Association (KIFWA). Others are Association of Kenya Insurers (AKI), Transport and Infrastructure ministry and Intergovernmental Standing Committee on Shipping (ISCOS).
Its main task is to ensure co-ordination between government agencies and industry stakeholders to ensure that from next month, most of the imports and exports are insured.
According to IRA, there were 49 registered insurance companies in Kenya with 35 offering marine insurance products.
The top 10 have a 65 per cent market share with the largest insurer GA Insurance Kenya Ltd writing premiums worth Sh283 million a year. The sector has grown at an annual rate of 7.4 per cent over the last five years . It saw a 1.8 per cent decline in 2014 premiums compared to 2013, IRA said.
Of the 34 insurers that transacted MCI, only four- GA, ICEA Lion, Kenindia and APA dealt more than Sh200 million each, in gross premiums.
On-shoring marine cargo insurance would increase the share of total industry premiums from the current 1.7 per cent to 10 per cent or from the current Sh2.7 billion to Sh16 billion a year, according to Ms Karigithu.
She said the team will develop a common understanding of the nature and current status of the marine cargo insurance sector in the country and identify key stakeholders and their respective roles, responsibilities and proposed contribution towards implementation of Section 20 of The Insurance Act, Cap. 487 of the Laws of Kenya.
It will also constitute a working committee to provide a road-map for implementation of the policy directive announced during this year’s budget speech.
“This will also be beneficial to Kenyan importers who under the current practice have limited recourse if anything happens to their imports before they arrive in the country,” said Treasury CS Henry Rotich in the budget.
The directive by Treasury comes at a time when industry players have started various initiatives to promote the MCI uptake in the country.
Kenya Maritime Authority (KMA) and ISCOS have in the recent years partnered with other industry players to sensitise importers though the success has been slow forcing them to lobby for a policy intervention by the government.
Recently, ISCOS and the Federation of East African Freight Forwarders Association (FEAFFA) signed a Memorandum of Understanding (MOU) to work together to promote competitive shipping and maritime services and identified the need to increase procurement of local marine insurance for imports and exports in the region as a key area of immediate attention.
The region, according to ISCOS, exports a colossal amount of money which could benefit the region greatly in terms of economic development.
“Lack of proper knowledge by shippers and poor implementation of the existing laws have conspired to deny the region billions of shillings ceded to foreign insurance firms involved in international trade,” Mr Kenneth Mwige, ISCOS Secretary General who is chairing the committee said.
FEAFFA, the umbrella body of clearing agents in the six East African Community (EAC) members has already partnered with revenue authorities in its members states to offer customs agents the mandatory East Africa Customs and Freight Forwarders Practicing Certificate (EACFFPC) programme.
Ms Karigithu said that the ongoing initiatives have already created a background that will make it easy to create the intended framework to implement the government’s new directive to raise more MCI uptake in the country.
A research carried out by the AKI in 2013 identified factors that contributed to low uptake of MCI in Kenya. The study blamed unawareness among importers of the availability of suitable insurance products to cover their incoming cargo.
The standard of service delivery was said to be low, more so in comparison to what is currently seen in other industries such as the banking. Survey respondents felt ill-informed about the terms of insurance. They did not understand the products, according to the survey results.
Respondents also reported frustration when submitting or pursuing claims. The perception is that insurance providers do not honour claims, and the length of time and the process it takes to handle investigations and to compensate policy-holders is a major concern.
Other factors cited were perceived high premium rates relative and poor product information and public awareness efforts by the insurance industry.
