General insurers recorded a 53.2 per cent drop in underwriting profits in the six months to June following a spike in claims in the motor and medical classes.
The sector recorded a profit of Sh586 million in its core business compared to a profit of Sh1.2 billion posted in a similar period last year, data from the Insurance Regulatory Authority (IRA) shows.
The profit drop follows a 20.4 per cent increase in insurance claims accompanied by a slower growth in premiums at 14.1 per cent to Sh58.6 billion.
“The claims incurred under general insurance business were Sh24.48 billion during the period under review which was a 20.4 per cent increase,” said IRA.
Underwriting profits refer to premium collected less claims paid and administrative expenses incurred.
“The industry follows the economy so this year there has been a dip. A slow economy means lower collection of premiums and claims go up as people are more motivated to exaggerate their figures,” said insurance expert Isaac Ng’aru.
Insurance cover for private motorists recorded the largest losses of Sh1.3 billion, which is indicative of a rise in accidents involving personal cars.
Medical, which has been a headache for insurers, slipped back to the red returning an underwriting loss of Sh273 million in the six months.
Other loss-making insurance categories were fire, industrial and engineering.
A past study by IRA indicates that the high losses in the motor class may be attributed to more instances of fraud.
Notably, the motor commercial class recorded the highest underwriting profit at Sh298 million.
The Association of Kenya Insurers noted that the private motor and medical classes were most prone to fraud given they are personalised covers with the holder being the direct beneficiary.
“The level of fraud in private motor cuts across the owner, garage operators and assessors,” said CEO Tom Gichuhi.
He also noted that because of high levels of competition in the motor private and medical business, the classes were not priced appropriately to reflect the risk the insurers carry.
The underwriting results had been on an upward trend since 2010 before the last year’s fall, which was caused by an escalation in claims from the private motor class.
Some insurers have recently declined insuring a class of private motorists due to economic reasons.
AIG in a memo sent out in May had said it would not be underwriting Subaru and BMW vehicles valued Sh1.5 million and below. The insurer argued that most of the claims lodged by the car users involved write-offs and the parts for the vehicles were expensive.
Claims from private motorists in the six months were Sh6.2 billion.
Listed insurer, CIC Insurance posted the largest underwriting loss of Sh349 million, followed by British American Insurance at Sh211 million and Gateway, which was recently acquired by Pan Africa Insurance, with a loss of Sh127 million.
Insurers have a leeway of investing excess cash before any claims are made, earning them an investment return.
Despite recording losses on the underwriting side, IRA data shows the general insurers recorded an operating profit of Sh1.9 billion largely attributable to investment income of Sh2 billion.
Insurance businesses conduct life (long) and general insurance. General business accounts for two-thirds for the total collected premiums making its performance crucial to the market.
Premium from life insurance covers increased by 17.9 per cent in the year to June to Sh29.7 billion.
The sector has seen increased investor appetite as more players look to reap from insuring the nascent oil, gas and mining sector and increased uptake of social security packages by a growing middle class
Editors Note: A previous version of this article read that the general insurers made underwriting losses in the six months to June. The Insurance Regulatory Authority has however notified us of an error in their report affecting Occidental Insurance whose correction pushed the industry to a profit position.
Occidental Insurance posted an underwriting profit of Sh107 million and not the previously reported loss of Sh686 million.