Way out for bleeding car, health insurers in Kenya

Bleeding medical health insurers could join hands to set up own facilities, which will make it easier for monitoring processes thus cutting out fraudulent claims. FILE PHOTO | NMG 

By GEORGE BODO

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Summary

• Underwriters have the option of setting up own garages and hospitals to be able to monitor the whole process.

Every so often, I get to opine about the business dynamics of Kenya’s insurance sector, specifically general (or short-term) insurance.

Today I get to put up a case on a unique aspect of the general business. In 2016, motor vehicle (both private and commercial) and medical insurance, combined, accounted for 68 per cent of total general insurance business—and I’m talking gross premiums.

However, the two business classes bled money to death with insurers recording a combined underwriting loss of Sh3 billion.

The loss position was primarily a net result of steep claims, with net claims ratio of 70 per cent. Essentially, for every shilling written in premium (net of cession), 70 cents was exiting through the rear door. This is akin to a revolving door.

For the motor vehicle business class, net claims ratio stood at a whopping 96 per cent. At the same time, cession ratios remained very low at just three per cent; which points to the fact that underwriters weren’t biting more than they were able to chew.

Effectively, the steepness in claims is very suggestive of existence of voluminous illegitimate claims. Essentially, fraud.

The medical business looks a bit interesting: net claims and cession rates stood at 62 per cent and 28 per cent, very suggestive of a mix of fraud, albeit at low levels, and overstretched risk capacities.

My point here being that fraudulent claims, especially in these two business classes, could actually be higher than thought.

Most of the fraud seems to be coming from hospitals and motor vehicle repair points (the garages). In fact, one of the big underwriters recently disclosed that up to 40 per cent of its claims are fraudulent.

This then brings me to two issues: first, why haven’t underwriters considered a full integration? For argument purposes, assume 40 per cent of all underwriters’ claims were fraudulent—that translates into some Sh22 billion every year.

That is an amount enough to set up an underwriters-owned fully-functioning hospital(s), clinic(s), drug-dispensing points (pharmacies), motor vehicle repair points and spare parts supply chains.

READ: Insurance up 13pc as fraud dents private motor, medical business

Such a full integration can then give underwriters full visibility of the whole chain; from claims origination to payment, possibly taking out the fraudulent aspects of the system.

There is just no way general insurers can continue booking premiums in excess of Sh80 billion annually and retaining nothing.

That’s not business and, they must really disrupt themselves. Otherwise insurance companies will continue to finance hospitals and garages in this town.

The second issue is around information sharing. It shouldn’t be acceptable that a single insurable liability can be underwritten concurrently on multiple occasions especially in the motor vehicle business.

Once an insurance contract has crystallised, that information should be easily available to other underwriters for purposes of visibility.

I understand a lot of progress has been made on this front but still, the process must run its full course until actualisation.

Players must also dump this restrictive, predatory approach to underwriting for their own good. I mean they have to share stuff. The banking sector has done an excellent job in information sharing and they realised it is for their own good.