Proposed guidelines highlighted by Treasury Cabinet Secretary Henry Rotich, now allow local insurance firms to insure inbound cargo. “It is huge business worth about Sh20 billion in premiums that has been unlocked for our members,” said Tom Gichuhi, the chief executive of the Association of Kenya Insurers.
Insurers emerged as the biggest winners in proposals contained in the national budget, granting them a portion of the Sh1.6 trillion-worth imports into the country.
Every motor vehicle imported into Kenya attracts a one off premium of at least Sh5,000 that is loaded onto the landed price that is paid by the importer. But the buyers of such vehicles have no guarantee that the insurance has actually been paid for, the AKI chief executive says.
Nearly 110,000 vehicles including trucks and buses were imported in 2015, translating to over Sh550 million worth of premiums paid to foreign insurance firms on that class of imports alone. The premiums would certainly be much higher when all other categories of more valuable imports are included.
Petroleum products worth Sh215 billion and machinery with an estimated value of Sh212 billion made up the top two imports, according to official statistics, indicating the size of potential market for local firms.
“It is something we have been fighting for the many years,” Gichuhi adds. A total of 46 insurance firms operate in Kenya, where at least half of them, including Britam, GA Insurance and Kenindia already offering marine cargo policies.
Collectively, the firms collected Sh2.9 billion worth of premiums from the marine segment in 2015 – before paying out just over Sh600 million worth of claims. Most of the revenues earned by the local insurers are from domestic exports, including coffee and tea.
A tiny proportion of imports are insured by local firms. Kenyan laws prohibit local insurers from covering risks in foreign countries, in this case transit cargo that could be in the high seas or on air.
“No insurer, broker, agent or other person shall directly or indirectly place any Kenyan business other than reinsurance business with an insurer not registered under this Act without the approval, whether individually or generally, in writing of the Commissioner,” reads the insurance law in part. It is that section of the laws that Mr Rotich now wants to amend in a measure he anticipates would support the insurance industry.
“In effect Mr Speaker, this denies insurance companies registered in Kenya huge business that could substantially benefit the industry and the economy as well,” said the CS in his budget speech. Imports into Kenya continue are typically on a Cost, Insurance and Freight (CIF) basis instead of Cost and Freight (C&F) basis.
Insurance penetration in Kenya is below 5 per cent- lower than comparable economies partly due to high costs.