Motor vehicle insurance pushed general insurers into Sh3.27 billion underwriting loss, the worst in over two decades, dragging down the sector that is struggling with fraud and price undercutting.
Association of Kenya Insurers (AKI) data shows that the underwriting loss — the difference between premiums collected and claims plus expenses— last year jumped from the previous year’s Sh1.12 billion.
Underwriting losses from insuring motor vehicles jumped by 92.4 percent to Sh7.35 billion, with private vehicle insurance returning losses for the eighth year running.
Motor vehicle insurance continues to be the main growth driver for the general insurance segment followed by medical and property insurance but rising losses are posing a threat to the survival of insurers.
The poor performance from motor insurance plunged general insurers into the fifth straight year of underwriting losses, with the last profit having come in 2014 (Sh1.6 billion).
“Although, the segment is experiencing growth in terms of premium income, there is persistent recording of underwriting losses for the past five years,” says AKI.
“The segment continues to report underwriting losses as a result of premium undercutting in effort by insurers to reserve market share.” Out of the 36 companies that underwrote motor commercial last year, 25 companies made losses compared to 21 companies in 2018.
Underwriting losses from private vehicle covers rose by 72 percent to Sh4.67 billion while losses from commercial vehicles increased 139 percent to Sh2.66 billion.
AKI data shows that 30 companies made losses from insuring private vehicles last year compared to 23 companies the previous year.
The record losses in the motor vehicle cover comes at a time of worsening claims ratio and the sector banking on digital motor vehicle insurance certificates to cut fraud.
Insurers have in the past stated that cases of fraud in the form of multiple insurance contracts and claims on a single vehicle are rampant.
The situation is made worse by price undercutting as the 36 insurers offering motor vehicle covers compete for customers.
Motorists are also short-changing insurers by using their vehicles for purposes different from those insured against, making it difficult to make proper risk profiling.
Last year, all the three sub-classes of motor vehicle insurance— private, commercial and public service – accounted for 35 percent of gross direct premiums under general insurance.
Motor vehicle third party liability insurance is mandatory by law in Kenya and obligates motorists to have coverage against risks of bodily injuries and deaths on the part of pedestrians or passengers.
The underwriting losses made motor insurance the worst performer among the 12 main insurance classes under general covers.
Other underwriting losses came from liability (Sh62.17 million), aviation (Sh79.2 million), and engineering (Sh130.3 million). The motor vehicle insurance losses took the shine off the sector’s improved performance in the fraud-prone medical insurance cover.
AKI data shows that the industry improved from an underwriting loss of Sh1 billon in medical cover to Sh139.3 million profit.
The Deloitte’s 2019/2020 East Africa insurance outlook report highlights that as a safety net to compensate for underwriting losses, insurers are turning to sub-optimal investment returns on property and equity markets.
The report further shows that the entrance of non-traditional insurance products and uptake of disruptive technologies by insurers is much slower than expected.