Price cuts bite chunk of insurance earnings
Steve Umidha @steveumidha
It will not be long before the Association of Kenya Insurers (AKI) releases another industry tracker and if it goes to form it will likely show that consumers are getting kicked in the teeth.
But more profoundly is the admission by its chief executive Tom Gichuhi that the industry is reeling from growing losses due to price undercutting practices among insurers – a trend he feels is self-inflicted and one that experts should discontinue debating using the hoary old line about there being an epidemic of dodgy whiplash-related claims.
“The industry must act,” he says, in a rare admission of industry breach on general insurance pricing, including rule breaking by a number of its members when it comes to policy renewals.
According to AKI boss, this is a disturbing pattern, the type that is likely to further erode insurance business as we know it.
Industry greed
He simply calls it, “greed” and has challenged his members “to apply common sense,” if the sector is to quickly bounce back from poor performance with a three per cent growth last year down from 6.5 per cent registered a year before.
In an exclusive interview with Business Hub, AKI boss revealed that majority of insurance firms predominantly under price medical insurance policies to win clients, a vice he says has significantly affected the sector’s performance.
“It is deplorable and should cease…and they know it is wrong,” he says.
Price undercutting occurs when an insurer sets very low premiums with the intention of winning customers. This heightens the risk of delayed or dishonoured payment of claims as capital wears out.
It has long been known that insurance companies not only in Kenya but also globally are apt to jack up prices for their existing customers at renewal time, while reserving the sweet deals for new ones.
And often, such target customers are those with a “healthy” balance sheets – the likes of Kenya Ports Authority, KenGen, Kenya Power and Kenya Pipeline Corporation among others that nearly all insurers elbow to secure their “prime signatures,” and are willing to go the “extra mile” including price undercutting.
Ordinarily, firms that undercut insurance premiums win clients, but such insurers always end up paying more money in claims, resulting in huge losses in their balance sheets, and while insurance undercutting is yet to be observed in the motor class, it is highly widespread in the medical class.
Competition Authority of Kenya (CAK) had in the past thwarted previous attempts to set minimum premiums for different risks with the sector also troubled by lack of inclusive supervision and fraud among other threats.
Insurance regulations have continued to develop more robust supervision of players and to cater for the growth of the industry.
There has been a global rise in regulatory sandboxes for testing innovative solutions in a controlled environment.
In Kenya, the Insurance Regulatory Authority is developing guidelines for sandbox regulation.
In 2018, several legal and regulatory changes were proposed including four regulations on Takaful insurance, group wide supervision, ban assurance and micro-insurance. The regulations are yet to be enacted.
