High prices slow down terror insurance

Money Markets

A contractor clears debris from a section of the Westgate Shopping Mall in Nairobi following the September 2013 terrorist attack. Photo/FILE 

By GEORGE NGIGI, gngigi@ke.nationmedia.com

In Summary

• The number of policy holders dropped 16 per cent in the first five months of the year following a seven per cent rise in premiums.
• The uptake of terrorism insurance picked up following last September’s attack on Westgate Mall, making the ongoing decline a complete reversal.
• The pricing of terrorism risk has traditionally been influenced by the country rating making Kenya’s severe and frequent attacks a critical factor.

A recent decline in Kenya’s security rating has pushed up the cost of terrorism insurance, forcing some policy holders to drop it altogether despite rising risk of exposure, industry data shows.
UAP insurance, one of the leading insurers of terrorism-related risks, said the number of policy holders dropped 16 per cent in the first five months of the year following a seven per cent rise in premiums.

The pricing of terrorism risk has traditionally been influenced by the country rating making Kenya’s severe and frequent attacks a critical factor.

UAP general manager of operations Michael Oduor said the pricing of terrorism risk has increased almost two-fold in the past 18 months.

“Convincing clients to buy or renew policies at the current prices has become a major challenge for insurers,” said Mr Oduor, adding that the firm had lost some policy holders despite the rise in terrorism incidents.
The uptake of terrorism insurance picked up following last September’s attack on Westgate Mall, making the ongoing decline a complete reversal.

The rise in premiums has, however, become a growth driver for reinsurers like the African Trade Insurance Agency (ATI) which reported higher gross premiums driven by political violence, terrorism and sabotage covers.

The company’s gross premiums rose by 47 per cent last year compared to a year earlier.

More recently, industry players have been running media campaigns for the terrorism product that is little known despite of having been introduced in the market in 1998.

READ: Westgate attack to raise cost of terror insurance

Tom Gichuhi, the managing director of the insurers’ umbrella body, AKI, said the association wanted to create more awareness of the cover following painful incidents that have seen businesses miss compensation for terror-related losses because their insurance policies did not include terrorism.

Most victims of the Westgate attack were not compensated because their policies did not include protection against terror attacks.

The new risk profile has also hit motor vehicle owners who have long regarded comprehensive insurance policy as sufficient for all forms of risks.

But the insurers disapproved of that position when they declined to pay for cars that were destroyed during the Westgate attack.

The insurers argued that the comprehensive cover relates to damages incurred during normal usage of the car and does not include extraneous acts such as terrorism.

Acts of terror and natural disasters unless specified in the contract fall under force de majeure (beyond normal) upon which underwriters recant responsibility.

Insurers tried to have owners of matatus, which have been targeted by terrorists, pick up terrorism cover with only limited success.