Underwriters are worried that there is something wrong with the implementation of the directive.
The insurers initially set an ambitious annual target of raising annual premiums of between Sh20 billion and Sh22 billion once the State locked out foreign underwriters.
A year after it became compulsory for importers to have local marine cargo insurance (MCI), underwriters are worried that there is something wrong with the implementation of the directive.
While they cannot put a finger on the possible rotten apple, the industry is suspecting porousness in three areas that they are now investigating to interpret the poor performance of 2017.
It’s the abnormal low premium income that has thrown the industry into a spin with official data showing they may have only achieved 20 per cent of their 2017 annual premiums target.
The three suspect leads are whether some importers are ignoring the directive on MCI. They are also investigating claims of price undercutting among service providers and the effect of electoral politics on import volumes.
“We have to know what’s happening exactly. We want to ensure there is no cheating so that MCI directive can work for all stakeholders in 2018,” said Association of Kenya Insurers (AKI) chief executive Tom Gichuhi.
“But generally, we are encouraged by month on month improvement which climaxed in October when official figures indicated the local industry had collected monthly premium of Sh1.8 billion, which is 70 per cent of the target,” he said.
The insurers initially set an ambitious annual target of raising annual premiums of between Sh20 billion and Sh22 billion once the State locked out foreign underwriters.
However, the regulator is assuring the insurers that nothing has been lost.
The Insurance Regulatory Authority (IRA) says the MCI is one of the momentous events of 2017 but says it will be a while before the industry meets its targets.
The IRA projects that the industry, which collected Sh2.7 billion worth of MCI premiums in 2016, will nearly double the premiums to Sh4 billion in 2017.
The IRA data also underscores the bullish mood that greeted the locking out of foreign MCI underwriters. The number of firms offering MCI rose from 34 in December 2016 to 37 in January 2017 — the first month of implementation of compulsory MCI, leading to vicious price wars.
While the IRA says it has not received official complaint, it acknowledges that fierce competition always breeds unethical practices.
“There is always a tendency by firms to think that they can grow their business by offering low rates but that comes with devastating effects,” Mr Geoffrey Kiptum, the IRA acting chief executive said.
“I’m sure 2018 will be a better year for MCI but I don’t expect the industry’s premiums to rise to the estimated targets.” President Uhuru Kenyatta has adopted maritime (blue) economy as one of the growth pillars of its administration with experts estimating that it can generate an additional Sh420 billion annually to the GDP.
The shipping and affairs unit that he set up in late 2015 to oversee exploitation of the blue economy identified MCI as the fast highway to ocean-linked treasure.
Treasury Secretary Henry Rotich picked January 1, 2017 as the start date for buying marine cargo insurance from local providers.
Nancy Karigithu, the former Kenya Maritime Authority boss who heads the marine affairs unit as principal secretary, says the MCI is a policy triumph.
Local insurance firms agree. They say the compulsory MCI marked a watershed moment in their push to grow insurance coverage, which, for some time has been stuck at five per cent of the population.
“Generally there was a positive outcome for every service provider but not as significant for MCI re-insurers because foreign firms are still allowed to participate in the segment (reinsurance),” said Kenya Re managing director Jadiah Mwarania.
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