AKI chief executive Tom Gichuhi. FILE PHOTO | NMG
Crafty local insurers are bypassing their local counterparts and
ceding out premiums to foreign underwriters for a higher commission,
reducing overall earnings for fellow Kenyan insurers.
Kenya
Association of Insurers (AKI) chief executive Tom Gichuhi said in an
interview with Business Daily that many insurers are going against
regulations and selling out risks that could easily be covered in local
market.
By passing part of the risk to offshore
insurers, the local firms earn a commission as would a broker, an
incentive that is driving capital flight from Kenya.
“When
they realise that they earn more commission by passing the risk to
offshore insurers as opposed to spreading it to other local firms, they
bypass local insurers,” said Mr Gichuhi.
“That amounts
to taking out significant portion of premium that would have been
generated in this market had they not been driven by greed.”
This
has slowed growth in premiums. In 2018, premium growth was at 2.22
percent, marking the fifth straight year of decline when compared with
21.3 per cent growth pace in 2013.
Ceding is a common practice in insurance as it allows the
primary insurer to reduce risk exposure by passing the balance of the
risk to other willing insurers.
Areas such as cyber
risks as well as oil and gas where capacity for local insurance is still
low were traditionally common for ceding but now this is stretching
into basic risks such as fire and motor vehicle.
The
Insurance Regulatory Authority (IRA) requires that before placing a risk
outside Kenya, an insurer seeks regulatory approval by demonstrating
that the entire local market is unable to absorb the risk.
This
is in line with section 20 of Insurance Act which dictates that all
business carried out in Kenya must be insured locally unless with
special approval from IRA.
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