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Insurance
March 19, 2024
Over the last year, there have been several adjustments in Kenya’s insurance sector, particularly touching on car insurance.
Most big players in Kenya’s insurance industry now have a 15-year ceiling when it comes to offering comprehensive cover for a car. Most only offer third party insurance for such vehicles.
“Many insurance companies are reluctant to offer comprehensive cover to vehicles that are 15 years or older,” a Britam Insurance employee affirmed when speaking to Money254.
This, among other changes in the industry, has resulted in various changes in the market as Kenyans seek for affordable insurance.
Motor Vehicle insurance is a mandatory cost for any car owner in Kenya. According to the law in Kenya, car owners must have minimum insurance to cover against liabilities and damages in case of an accident.
As of July 23, 2019, two major changes were made to the Kenyan Insurance Act.
Firstly, no cover could now be ‘assumed’ by an Insurer in Kenya without premium payment up front.
Secondly, all payments must now be paid to insurers as brokers are no longer allowed to handle client’s money.
Kenya’s insurance industry has witnessed steady growth over the years despite challenges such as a decline in economic growth, inflation, and the ongoing Covid-19 pandemic.
There are over 50 industry players in Kenya’s insurance sector, serving a population that’s mainly concentrated in urban areas.
Nairobi has the largest population of consumers of the insurance industry, with an estimated 65% of insured parties living in the Kenyan capital.
As mentioned earlier, anyone who owns a car in Kenya is required by the law to get Third-party motor insurance at the very least.
There are two main types of motor insurance in Kenya, namely: Comprehensive car insurance and Third-party motor insurance.
It’s estimated that Kenya imports slightly under 100,000 motor vehicles annually from second-hand markets such as Japan and Europe, which are either private or commercial motor vehicles.
The entry of hailing applications in Kenya, such as Uber and Bolt, has increased the demand for motor vehicle insurance in Kenya as vehicle owners seek compliance.
Notably, the rising demand for motor insurance has turned the industry into a ‘gold mine’ for criminal entities.
Fraud related to motor insurance remains one of the biggest headaches for insurance companies.
According to the Association of Kenya Insurance (AKI), 25% of insurance claims are usually fraudulent.
Losses in the hundreds of millions have been incurred by insurance companies offering motor insurance.
For example, in 2017, insurance companies lost Ksh2.74 billion as a result of fraudulent activities related to motor insurance.
Types of fraud reported range from staged robberies to intentional crashing of vehicles, which then leads to the filing of fraudulent insurance claims.
In addition, insurance providers have to deal with cases of double insurance, fake insurance certificates, as well as stolen insurance certificates.
Worryingly, research carried out by Bismart claimed that 22% of the motor vehicle insurance policies surveyed could not be validated.
A report published by AKI showed that the cost of motor vehicle insurance fraud ranges between 8% and 10% of total costs paid for damage to property, losses, and health care insurance.
It was against this background of fraud that AKI introduced Kenya’s new digital motor vehicle insurance certificate.
AKI recently unveiled the virtual form of the motor insurance certificate, which was expected to seal loopholes that had been exploited by fraudsters for years.
Unlike in the past, where car owners would get a certificate delivered to them, digitization now means they can get their insurance certificate via their emails Or WhatsApp.
The AKI application, is available for download, or via the USSD code *352#.
Using the above, one can easily verify the status of their policy in real-time.
How much one pays as insurance premium is dependent on several factors, which means one can work these variables to their benefit.
Here are some pointers on how you could optimize these variables in your favor in order to reduce your car insurance premiums.
When it comes to providing the current value of one’s car, most tend to ‘wing it’ - make a rough estimate.
This could work to bring the cost of insurance higher as the actual motor insurance premium payable is calculated from the value of the car.
It is therefore advisable to conduct an actual valuation of the vehicle in order to provide the correct market value.
It is always advisable to shop around for the insurance company that will give you the best deal.
Experts recommend sounding out at least 3 insurance service providers and comparing their products prior to choosing the preferred provider.
Some insurers could charge 4.5% rate, but a simple search could land you one that goes as low as 4.2%, it may not seem like much but it’s all dependent on the value of the vehicle.
It is good to start with the insurance that you really need, if you are looking to make some savings
For example, if you do not drive your vehicle everyday, you probably do not need roadside assistance.
Insurers may offer discounts if the client has several policies with them.
This means that if you own a home or a motorcycle, or you just need medical insurance for your family, it would be pocket-friendly to consider using the same company for all of them.
Combining your car insurance coverage with your home & health insurance policies could help you land a sizable discount.
One could also look into special packages such as the little known excess protector cover offered by some insurers in Kenya.
Excess protector is an optional benefit that can be added to the basic comprehensive car insurance quote in Kenya.
It removes the excess amount the insured client has to pay when they make a claim on the policy.
When the insured raises a claim, they usually have to pay a share of the cost and the other (larger) share is paid by the insurance company.
This puts the client in a demanding position where they could potentially have to pay over Ksh100,000 before their claim can be accepted and their vehicle repaired or replaced.
This is where the excess protector comes into play. It is a concept that is growing in popularity across the world, in countries like the UK.
Insurers now offer reimbursements for the excess borne by the insured.
Let’s look at a practical example:
A car of value Ksh 1,000,000 is involved in a traffic accident and the repair costs are Ksh 200,000.
The Excess section of the car insurance policy typically states the excess in this scenario as follows; Own damage 2.5% of car value minimum Ksh15,000 maximum Ksh100,000.
2.5% of Ksh1,000,000 = Ksh 25,000
The client pays Ksh 25,000 out of their own pocket Ksh 25,000 before the car can be repaired.
2.5% of Ksh1,000,000 = Ksh 25,000
The client pays Nothing. This is because the excess is above the minimum amount of Ksh 15,000. The insurance company covers the full cost of the damages to get the car repaired.
There are currently two types of excess protection covers in the Kenyan market namely:
It is applicable for claims to the insured vehicle arising out of a traffic accident. For private motor insurance in Kenya, this is usually set at 2.5% of the value of the car with a minimum excess value of Ksh20,000.
On the other hand, the rate for Commercial vehicles and PSVs is set at 5% of the value of the vehicle and minimum excess value also at Ksh20,000.
This is activated when it comes to the theft of the insured car. It applies to both partial or total theft.
Partial theft arises when a part or parts of the vehicle are stolen but not the vehicle in its entirety e.g. side mirrors, tyres, wheel caps etc..
There are different excess rates for claims made for car theft, depending on the security of the car. Percentages for the excess payable vary from as low as 2.5% of car value to as high as 25% of car value depending on the security features of the insured vehicle.
Major players in Kenya’s insurance industry have posted profits in the first half of 2021, following major losses witnessed in 2020.
As an example, Britam and UAP Old Mutual posted profits of Ksh376 million and Ksh252 million in the first 6 months of 2021.
According to the Insurance Regulatory Authority (IRA), profits across the entire industry grew by 136% during the period.
The growth was attributed to an improved operating environment, following the Covid-19 restrictions of 2020 that hit the industry hard.
This period was characterised by non-payment of premiums, expiring policies and very low renewal of short-term covers.
IRA further revealed that out of the 87,699 policies that were canceled in 2020, more than half (48,235) were car policies. Private car owners registered the highest number of cancellations (36,572).
This was largely attributed to the lockdown and restricted movement, with job losses also highlighted as contributing factors.
Notably, Kenya has the third lowest insurance penetration rate in Sub-Saharan Africa, due mostly to a perception among the populace that insurance is a ‘luxury’ product.
As is the case in many other countries across the African continent, Kenya’s insurance industry is in a constant fight with fraud and corruption.
According to a 2020 KPMG report, at least 25% of claims costs of insurers in Kenya are a result of fraudulent claims.
Data provided by the IRA showed a decline in car insurance fraud cases in the first half of 2021, with 45 reported cases, compared to 64 that were recorded during a similar period in 2020.
The most common cases of insurance fraud reported were faked motor accident (injury) claims, theft by agents, forgeries and conspiracy to defraud the agencies.
The profits registered across the board in 2021 shows that it’s not all doom and gloom for Kenya’s insurance industry.
Major players have now shifted their focus to micro-insurance products such as livestock and crop insurance, as they look to tap into a huge section of the untapped market.
There has also been a huge shift to the digitization of insurance products. Clients can now process some plans e.g. car insurance renewal through smartphones as technology now facilitates convenient interaction and self service.
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