Price wars, fraud push 14 insurance firms into losses

 Association of Kenya Insurers chairman Justus Mutiga speaks at their offices in Nairobi on October 29, 2014. PHOTO | DIANA NGILA
Association of Kenya Insurers chairman Justus Mutiga speaks at their offices in Nairobi on October 29, 2014. PHOTO | DIANA NGILA 

Price undercutting and fraud pushed 14 general insurance firms such as CIC, Resolution and AAR into large underwriting losses in the first half of the year.

Data from the Insurance Regulatory Authority (IRA) shows the companies made a total underwriting loss of Sh480.2 million in the period, meaning that they paid out more in claims and expenses than premiums collected.

The losses also pile pressure on insurers to earn higher returns on their investments — their only other avenue to turn a profit. Profitability for a comparative period last year was not provided.

Industry lobby Association of Kenya Insurers (AKI) attributed the performance to a mismatch in pricing of premiums and risks covered besides rising fraudulent claims.

“One of the challenges is that products must be priced adequately, failure to which claims outstrip incomes and you end up with a loss,” said Justus Mutiga, the AKI chairman.

“Insurers are also grappling with payment and management of claims to ensure they are genuine and not inflated.”

Medical insurance has emerged as one of the most vulnerable to fraud, a move that has seen insurers respond to the problem by issuing biometric identification cards and tightly controlling services accessed at certain hospitals.

Resolution, which mainly offers medical insurance, posted the largest underwriting loss of Sh116.3 million. AAR, which also focuses on this insurance class, incurred a Sh48.5 million loss.

CIC, which is listed on the Nairobi Securities Exchange, realised a Sh75.8 million loss linked to its medical insurance division.

The company is betting on its recent hiring of former doctors, including its head of medical insurance Edward Rukwaro, to help curb inflated claims from unscrupulous hospitals.

Other firms that made losses in the same period are Phoenix East Africa Assurance at Sh61.1 million, Gateway (Sh40.5 million), First Assurance (Sh38.7 million), Cannon (Sh36.4 million), Takaful (Sh21.2 million), Directline (Sh13.1 million) and Saham Assurance Sh5.5 million.

The overall industry, excluding life insurers, posted an underwriting profit of Sh1.2 billion on better performance of 22 firms whose underwriting profit ranged between Sh7.7 million and Sh224.6 million.

This was, however, down from the Sh2.1 billion recorded in last year’s first half, indicating reduced underwriting margins for insurers across the board.

The underwriting losses of the 14 firms comes two months after IRA put three insurance companies on notice for allegedly undercutting their rivals in terms of premiums.

The regulator in August directed Corporate Insurance, First Assurance and Monarch Insurance to stop charging lower than the approved minimum premiums for insurance policies or face disciplinary action.