Bill seeks to lower hurdles for insurers

Investors seeking to start insurance businesses are set for a boost if a draft abolishing uniform minimum capital requirements becomes law, increasing competition and provision of specialised products.

The Insurance Bill currently under discussion recommends that each insurance company holds a minimum capital based on its risk exposure.

“A licensed insurer shall maintain its capital resources at a level adequate to support its insurance business, taking into account the nature, scale and complexity of that business and its risk profile,” reads part of the Bill.

This marked shift from the requirement that all general insurers keep a minimum capital of Sh300 million and that life insurers at least Sh150 million has the potential to lower the barriers to entry especially for niche players.

Ratios to determine the capital limit of each player are to be contained in regulations that will be released after the Bill is passed.

Shareholders of large insurance companies are expected to increase their capital while small insurers will have cash released, allowing them to grow their business.

The minimum capital will however be a moving target, with the insurer aiming for a higher capital as the business grows.

“As a policyholder you will be well protected because your risk will be matched by shareholders’ capital which is your claim in case of insolvency,” said the chief executive of the Association of Kenya Insurers, Tom Gichuhi.

The industry has witnessed the collapse of companies such as Concord Insurance, Blue Shield, and Standard Assurance which have eroded public confidence in the sector. Low confidence has been cited as one of the factors contributing to slow uptake of insurance products.

READ: The changing face of insurance regulation

Mr Gichuhi also said the regulation would help entrench specialisation within the sector as insurers take on businesses that they have expertise so as to avoid huge rise in their risk exposures that push them to increase capital.

For example, Directline which only covers public service vehicles, has been holding equal capital with those covering all classes of business despite their risk exposure being different.

None of the listed insurers have been involved in capital raising activities through the securities market in the last year.

However the smaller non-listed players such as Resolution Insurance and Mercantile Insurance have ceded shareholding to new players who have injected capital in their businesses.

READ: Moroccan firm buys Mercantile Insurance

Insurance business in the country has been marked as having huge potential of growth due to low penetration levels which are expected to fall further with the rebasing of the economy.

The Bill also removed a provision requiring insurers and reinsurers to hold minimum assets in the country.

“The minimum asset requirement duplicates the capital requirement and it should never have applied,” said insurance expert Isaac Ngaru.

The recommended legislation also drops rates specified in the current Act transferring the statements to the regulations so as to ease their amendments.

For example the current Act requires insurers to contribute 0.25 per cent of the premium to the policyholders’ compensation fund with a further 0.25 per cent contributed by the policyholder.

The Bill does not state the amount that will be contributed.

Amendments to the Act have to go through Parliament but changes to regulations are passed by the Cabinet secretaries through gazette notice.