CIC hires Deloitte to advise on cost-cutting after 2014 profit hit

CIC Insurance has hired financial consultancy Deloitte to advise on restructuring of the company after its 2014 performance took a hit from loss in its medical cover business.

Chief executive Tom Gitogo said the restructuring is aimed at cutting costs and boosting the insurer’s efficiency.

CIC Insurance’s performance for the year ended December took a big hit from a Sh620 million loss on its medical cover business, which cut its net profit 16.5 per cent compared to the previous year.

“It is a huge exercise that will see us review our processes and market focus,” said Mr Gitogo.

He added that Deloitte will take a “total review of the business including our processes,” but said it would not lead to retrenchment of staff.

CIC has grown rapidly over the past few years on a large premium base. “It is time to look at our operations with the aim of increasing efficiency and defining our market identity,” said Mr Gitogo.

The insurer on Friday announced after-tax earnings of Sh1 billion for 2014, with total claims having risen 43.5 per cent to Sh8.6 billion.

The Sh2.6 billion increase in claims wiped off a similar increase in the insurer’s gross premiums and ultimately hurt its underwriting profit.

“Profit before tax declined by 17 per cent mainly due to increase in claims (particularly in our medical business) and policyholders’ benefit costs,” said CIC in a statement.

The company has over the past two years suffered from high claims in its medical division, an outcome it has blamed on rampant fraud in hospitals.

Medical insurance has emerged as particularly vulnerable to fraud, which has seen insurers respond by issuing biometric identification cards and tightly controlling services accessed at certain hospitals.

READ: Insurers slip back to losses as medical claims rise 45pc

CIC went a step further last year and hired Edward Rukwaro, a doctor, to help it check fraudulent or inflated medical claims.

Data from the Insurance Regulatory Authority (IRA) shows that Resolution Insurance had the second largest medical loss of Sh271 million. It was followed by APA Insurance whose loss in this class stood at Sh120 million, with a total of 11 underwriters making losses.

Besides fraud, the medical business has suffered from frequent price increments by hospitals and price wars that lead to setting of premiums not commensurate to risks covered.

Majority of the large private hospitals have raised their prices at least twice in each of the past two years, leaving insurers to foot bills with premiums that are reviewed only once a year.

CIC saw its total underwriting profit rise 10.3 per cent to Sh2.5 billion but higher operating expenses ultimately led to the profit dip.

The company’s expenses, including staff costs, rose 42.7 per cent to Sh3.3 billion in the period compared to Sh2.3 billion the year before.

Its investment income, however, rose by the largest margin of 45.5 per cent to Sh1 billion but was not sufficient to offset the impact of the higher claims and expenses.