The Marine Insurance Act Cap 390 of the Laws of Kenya defines a contract of marine cargo insurance as a document whereby the insurer undertakes to indemnify the assured, in a manner and to the extent thereby agreed, against the losses incident to any movable property other than ship including money and other valuable securities.
Marine insurance however, does not offer any coverage in cases like loss or damage due to willful acts of negligence and misconduct, loss or damage due to delay, or loss or damage due to improper packing. Other incidents excluded from the cover are , financial default or insolvency of owners, charterers, managers, or operators of the vessel, loss or damage due to wire, strike, riot, and civil commotion, loss or damage arising from the use of nuclear fission, weapon, or any other radioactive force, one quarter of cargo in case of collision damage, damage caused in the course removal of a wreck, contamination due to radioactive rays, and attack or damage from biological, biochemical, chemical, or electromagnetic weapons.
The terms and conditions may increase and vary according to different insurers, and therefore care should be taken in choosing the form of cover one wants.
In Kenya, the Marine Insurance Act, makes it compulsory to insure marine cargo locally.
So why then do many exporters shun local insurance firms?
There is of course the issue of capacity where most importers are not sure whether the industry can handle the volumes of business in marine insurance. The usual argument the industry offers is that they have the capacity and that if a single company cannot handle a certain volume of business then there is always the option of co-insuring.
While that sounds reasonable, the major issue is how many companies have the capacity to co-insure very large volumes of business as usually experienced in the marine insurance trade? Also what percentage will be ceded to re-insurance? Re-insurance will always be guided by the other party’s capacity to meet their obligation, and the reasons behind partnering with a ‘weaker’ party. Questions also arise on whether or not the risks that the ‘weaker’ party may be exposing themselves to by raking in a very large risk regardless of the premiums charged for the same.
The major issue here is that the industry’s capacity to handle claims is deteriorating by the day and if a company cannot handle a simple motor claim running into hundreds of thousands, how then will they be expected to compensate claims that run into billions?
The claim by the local insurance industry that they have the capacity to handle marine insurance brings up another issue the extent of the coverage? The less a contract of insurance is exposed to risks the cheaper it is, and the more the insured discovers that their cover is not worth much. That is however not the same as saying that the industry can cover marine insurance risk because there will be no cover technically to begin with if this were the case.
Marine insurance pricing
It is also important to look at the pricing of insurance as compared to other countries in the world offering cover for the same risk. Does our price measure up? What about delays in claims settlement? Our insurance industry is notorious for delays or outright refusal to settle claims.
The regulator seldom helps either and this brings up issues of perceived collusion with companies not to settle claims even when the claimants resort to them for help.
Regulatory framework and a lack of local market awareness have been blamed for the low uptake of marine insurance products offered by Kenya’s insurance companies.
Therefore, market awareness can be achieved by involving insurance intermediaries in the sale and distribution of marine insurance products noting that insurance companies have marketed marine insurance as freely available in their portals without the need for intermediaries. This however goes against the norm of involving intermediaries in promotion of various insurance products, which hampered the initial uptake when the National Treasury directive to enforce Section 20 of the Insurance Act came into effect on 1 January 2017.
The recent statement that KenTrade – National Electronic Single Window System portal will enhance marine cargo insurance is not really true. The system is only supposed to harmonize and ensure proper coordination of cargo logistics in Kenya, not ease doubts as to capacity handling or other issues bedeviling the industry.
There are still problems of price undercutting among the various players in their bid to cut a market niche. But these price wars can only add to the problems of marine insurance uptake when the claims start coming in and they cannot honour.
There needs to be a better way to handle marine insurance uptake by addressing the concerns
highlighted and strengthening the insurance sector in this country. There are far too many concerns that insurance is not being done right in this country.
Washington Ndegea - Chairman Bima Intermediaries Association