The insurance industry continued to underperform in the second quarter of the year, going by data released by the Insurance Regulatory Authority (IRA).
Gross premium income was still being driven by general insurance, which accounted for 60 per cent of total income. Essentially, Kenya is still largely a general insurance market. The segment is being driven by two business classes: motor vehicle and medical. The pair accounted for 67 per cent of total general insurance gross premium income in the second quarter-which makes them very representative of the general insurance market.
However, despite netting in premiums to the tune of Sh18 billion, the two recorded a combined underwriting loss of Sh1.3 billion in the period.
Underwriting loss position for the motor vehicle business class widened from Sh259 million recorded in the first quarter to Sh1.2 billion. Again, private and public service motor vehicle insurance continues to provide the perfect keg powder. The medical business, on the other hand, slipped into a loss position of Sh33 million from an underwriting profit position of Sh300 million in the first quarter of the year.
But that notwithstanding, the general insurance business, as a whole, while netting in premiums of Sh26 billion, recorded a net underwriting loss position of Sh425 million in the second quarter.
Again, general insurance continues to live up to my billing of it as a gold-plated revolving door. Essentially, premiums-in-premiums-out. Indeed, out of the Sh26 billion in premiums netted in the period, the sector couldn’t retain a single shilling. And by the way the shredding of general insurance business income statements is worse if you plug in overheads.
But one thing continues to stand out in the general insurance scene: steep claims. In 2016, net claims ratio for the general insurance business was 65 per cent. Essentially, for every shilling written in premium, 65 cents was exiting through the rear door. Remember the revolving door narrative?
For the motor vehicle business class, net claims ratio stood at a whopping 96 per cent. But this steepness in claims, in my view, is very suggestive of existence of voluminous illegitimate claims.
Essentially, fraud. The medical business looks a bit interesting: net claims and cession rates stood at 62 per cent and 28 per cent, very suggestive of a mix of fraud, albeit at low levels, and overstretched risk capacities.
The issue of fraudulent claims, in my assessments, could actually be higher than being thought. This then makes me reiterate two issues: first, why haven’t underwriters not considering full integration? I mean, the premium pilferage quantum is enough to set up an underwriter(s)-owned fully-functioning hospital(s), clinic(s), drug-dispensing points (pharmacies), motor vehicle repair points and spare parts supply chains.
A full integration can hand underwriters full visibility of the whole chain-from claims origination to payment; possibly taking out the fraudulent aspects of the system. There is just no way general insurers can continue netting in premiums of Sh26 billion and retain nothing.
The second issue is around information sharing. It shouldn’t be acceptable that a single insurable liability can be underwritten concurrently on multiple occasions-especially in the motor vehicle business. Once an insurance contract has crystallised, that information should be easily available to other underwriters for purposes of visibility.
Mr Bodo is an investment analyst [email protected]