Recent headlines in Kenya on marine insurance read something like this:
- Marine insurance fails to make the cut
TUESDAY OCTOBER 24 2017
- Business News
KRA blamed for low marine cargo insurance uptake
By Lee Mwiti | Wednesday, Aug 2nd 2017
- Kenyan insurers battle for marine cover – The East African
When the 1984 law was said to be kickstarted early this year, there was much talk on the windfall the marine insurance industry would get. StilFresh gave a talk during the Marine Cargo Conference and Exhibition 2017 on the challenges that the potential sudden change in the market could bring. One of the key topics debated during the event was if the market has the technical capacity to handle complex marine insurance underwriting and claims management requirements.
At the time, it was forecasted that the market would get Ksh20 billion as premium once article 20 of the Marine Insurance Act kicks in compelling all imports to Kenya to be insured locally. In an attempt to understand why this windfall didn’t quite happen as expected, investigations are being conducted to see if some of the importers are breaking the law by not insuring locally. Also, the IRA is looking at whether foreign entities have setup shop in Kenya for the purposes of bypassing the restrictions of the law. This poor performance of the industry has led to a cutthroat competition based on price by some underwriters in the market with the obvious effect of inability to meet with claims obligations.
As at June, total premiums collected under the marine cover were Ksh1.83 billion ($18.3 million).
By the end of Q2, less than Ksh 2 billion was collected as premiums with more than half of that going toward claims payment alone. We are no experts in marine insurance business. So we cannot pretend to have the panacea to fix the current market climate.
However, as specialists in marine cargo claims recoveries focused on the African continent, we can suggest a good place to start: Subrogation recoveries.
What is subrogation?
According to Investopia, Subrogation is the right for an insurer to legally pursue a third party that caused an insurance loss to the insured.
Why does it matter?
In more advanced economies, subrogation comes as second nature for experienced underwriters. However, this is not always the case in many African countries and certainly not in Kenya. It is said about 22% of paid claims can be recovered by pursuing effective subrogation practices. This would go a long way in improving the bottom-line of the market players bringing an end to the malpractice of obscene price wars.
While this seems obvious, there are still missed subrogation opportunities in the local Kenyan market in particular and the African market in general. There are various reasons why these opportunities are missed. We will be looking at how to capture these opportunities in another post (after our next paper to be presented in Mombasa). For now, safe to say the current situation in the marine insurance market in Kenya can, in part, be resolved through effective subrogation recoveries.
