- The government started enforcing section 20 (1) of the Insurance Act that requires all insurance for imports to be procured locally on January 1.
- From January 2017, the government has made it compulsory to procure marine insurance from local players.
- A technical team comprising six government agencies and the private sector was formed to oversee implementation of the law.
If the Marine Cargo Insurance (MCI) business lived up to its promise, local firms should be collecting an average of Sh1.6 billion per month as premiums from January.
So far, that does not seem feasible. In January and February this year, Sh407 million worth of MCI premiums was underwritten by local insurers, representing a 40 per cent growth, said Tom Gichuhi, Association of Kenya Insurers (AKI) chief executive officer.
“There is an increase in business and we expect that the figures will keep rising especially considering there were challenges during the first three months of implementation. We are currently in the process of collecting data for the month of March,” said Mr Gichuhi.
But the statistics are not impressive since the industry was expected to have underwritten at least Sh3.2 billion in the two months going by the stated MCI potential of over Sh20 billion annual premiums.
From January 2017, the government has made it compulsory to procure marine insurance from local players. Mr Gichuhi warned that the growth might also be undermined by stiff competition by industry players that could lead to undercutting of premiums in a rush to get a slice of the billions that the sub-sector promises.
“The 40 per cent is impressive but it may not necessarily be a representative of absolute numbers. My fear is that if we go to the old ways of undercutting this might undermine this growth,” he said.
The government started enforcing section 20 (1) of the Insurance Act that requires all insurance for imports to be procured locally on January 1.
When most importers order goods, they ship the cargo on a Cost Insurance and Freight (CIF) basis, leading to capital flight of billions of shillings paid to foreign firms in form of insurance premiums. Implementation of the MCI law shifts the insurance element to the local insurer with the importer advised to import on Cost and Freight (CFR) only.
In June last year, Treasury cabinet secretary Henry Rotich directed the Kenya Revenue Authority (KRA) to enforce the rule, opening the sector to huge business opportunities.
A technical team comprising six government agencies and the private sector was formed to oversee implementation of the law.
Members of the team include KRA, Insurance Regulatory Authority (IRA), Kenya International Freight and Warehousing Association (KIFWA), Association of Kenya Insurers (AKI), State Department of Shipping and Maritime Affairs and Intergovernmental Standing Committee on Shipping (ISCOS), which is providing secretariat services to the taskforce.
ISCOS secretary general Kenneth Mwige said the industry is waiting for KRA and IRA to release the first quarter statistics to enable them gauge the success of the implementation of the law.
Underwriters collected Sh2.9 billion in premiums from the MCI sub-sector in 2016 but projections put the figure at over Sh20 billion annually if marine insurance is procured locally.
Since implementation of the law three months ago, industry players have stepped up marketing campaigns and launched various products, besides setting up portals where importers are buying cover for their goods online.
Mr Gichuhi’s fears of undercutting might be based on the past where during the period before 2009, the motor vehicle insurance sector faced upheavals caused by undercutting, with companies charging too low premiums that could not sustain claims. With the sector on the verge of collapse, IRA set minimum premiums in the 2009 Insurance Guidelines.
But the move was contested by the Ombudsman who went to court over the matter. The IRA was dealt a blow on April 12 this year when High Court judge John Mativo ruled that setting of the prices was illegal and that the market forces should be left to dictate costs.
To ensure order in the sub sector, IRA says it will enforce strict regulations to ensure companies pay claims arising from MCI to win the confidence of importers and will now allow companies to compromise payment of claims in case they arise.
“We are keen on enforcing the law to win the confidence of importers that their claims will be paid,” IRA acting chief executive officer Godfrey Kiptum said in a recent media briefing in Mombasa on the sidelines of a MCI sensitisation workshop for importers and clearing and forwarding agents.