Price undercutting hands private car cover huge losses

Money Markets

Association of Kenya Insurers chief executive Tom Gichuhi at the launch of the 2013 industry report in Nairobi Aug 28. PHOTO | DIANA NGILA 

By GEORGE NGIGI, gngigi@ke.nationmedia.com

In Summary

• Insurers of private cars recorded a collective loss of Sh746 million compared to negative Sh100 million in 2012, a trend linked to price undercutting in the sector.
• APA Insurance recorded the largest loss at Sh179, followed by CIC Insurance and Gateway at negative Sh129 million and Sh112 million respectively.

Private motor vehicle insurance sunk deeper into losses to remain the only unprofitable class last year after medical underwriters posted profits for the first time.

Insurers of private cars recorded a collective loss of Sh746 million compared to negative Sh100 million in 2012, a trend linked to price undercutting in the sector.

“This can be attributed to the failure by underwriters to adhere to the prescribed motor underwriting guidelines issued by the Insurance Regulatory Authority,” said Association of Kenya Insurers (AKI) in its annual report released on Thursday.

APA Insurance recorded the largest loss at Sh179, followed by CIC Insurance and Gateway at negative Sh129 million and Sh112 million respectively.

Commercial vehicles whose covering has pushed several companies to insolvency — such as Access, Lakestar, Blue Shield and Invesco — was the star performer with Sh1.6 billion. This was attributed to falling fraudulent claims and structured judicial awards in the PSV industry.

Medical cover returned a profit of Sh119 million after making underwriting losses since records started being kept five years ago.

“Most companies have improved their claims management process which has helped in taming leakages,” said AKI chief executive Tom Gichuhi.

Many insurers are now using biometric technology to lock out impersonators. CIC insurance, which recorded the largest loss in the medical class of Sh293 million, early this year hired a medic to investigate received claims.

READ: 3 insurance firms put on notice for undercutting rivals

Mr Gichuhi said the medical underwriting profit was negligible compared to the premium generated by the cover.

Medical covers attracted the highest premiums of Sh20.8 billion compared to commercial vehicles at Sh19.6 billion and private cars at Sh14.2 billion.

Medical insurance though is not mandatory unlike motor insurance which is a statutory requirement. Insurers have accused hospitals of ballooning bills of patients with insurance cover.

Cover uptake has recorded growth with insurance penetration, a ratio of premiums collected compared to the country’s gross domestic product, rising to 3.4 per cent from 3.1 per cent last year.

Gross premiums grew by 21.1 per cent which was marked as the second fastest growth globally by AKI after Jordan’s 24 per cent growth. Premiums collected by the insurers last year totalled Sh86.6 billion up from Sh71.5 billion in 2012.

Insurers’ profit after tax grew by a quarter to Sh14.5 billion driven by business expansio