Automobile Insurance Products In Kenya
Insurance including reinsurance refers to the business of undertaking liability by way of pooling resources in order to spread financial risk across a population so that no one individual carries all the burden of loss, in respect to life and personal injury and any loss or damage. It also covers liability to pay damage or compensation, contingent upon the happening of a specified event. It aims at reducing or completely eliminating certain measurable risks of economic loss. Insurance business in Kenya dates back to the colonial period when Kenya was a British colony. The earliest insurance companies include; Pioneer Assurance Society 1930, Jubilee Insurance Company 1937, Pan Africa Insurance 1946 and Provincial Insurance Company Limited 1949. Currently, the legal and institution framework of insurance business derives from the Insurance Regulatory Association (IRA) and the Association of Kenyan Insurers (AKI).Kenya, just like most countries in the world, requires all cars (or their drivers) to be insured before they can be used on public roads. This has made it the most acquired form of insurance. The use of vehicle has an implanted mortality and morbidity risk in addition to loss through fire and theft. In view of this automobile insurance was developed to take care of the possible loss that may arise from the use of motor vehicle. Motor Insurance comes in a number of types like the third party only, third party theft and fire, comprehensive, collision, among others.
As at 2016, Kenya had 52 insurance companies, 15 of which provide automobile insurance. The two major policies these companies sell are comprehensive cover and third party insurance. The comprehensive cover is the most expensive among all motor insurance policies. It covers compensation for all incurred losses, that is cost of repair to the car in the event of an accident, cost of replacing the vehicle when stolen or damaged beyond repair, medical expenses as well as legal claim liabilities against the driver or the insured filed by an aggrieved third party. This type of cover is not mandatory in various countries across the globe including Kenya.
On the other hand, as stated by Kenya traffic laws, getting a vehicle insured with third party insurance is mandatory in order to be allowed to drive on roads in Kenya. Third party caters for the cost of repairing the vehicle only as well as damage to the other party’s vehicle or non-car crash incidents. This makes its premiums cheaper than comprehensive cover. Various other factors such as type of car model, color of the car, engine size or no-claim discount determine the premium to be charged for each car individually. A claim in motor insurance refers to the demand of payment of a loss (in form of property damage or loss of life) by a policyholder or by an injured third party. In reference to The Insurance Act (2015), all claims must be settled within 90 days from the claim report date.
Faster claim settlement is becoming one of the top objectives of all insurance companies because that would make them unique as it enhances their credit rating. The insured, while reporting a claim, must be able to provide:
- Police report form.
- Pictures of the accident.
- Driving License.
- Estimates of items damaged in the vehicle.
- Proof of Doctors’ report if any.
In the recent past, the payment of claims by some automobile insurance companies has become a great challenge. Many insurance companies have been forced to go under statutory management over the inability to settle outstanding claims owed to policyholders. For example, United Insurance Limited was declared insolvent in 2005. This left behind many claimants without compensation while other policyholders were left uninsured and had to look for alternate insurance policies. Claims worth Sh1.2 billion still remain unpaid. Other companies that have been declared insolvent due to unprecedented losses include Standard Assurance, Blue Shield and Invesco Assurance which has since been revived. Companies in the general insurance business face tough times ahead as competition increases for a diminishing market. Considering the fact that Kenya is ranked among the countries with the highest road carnage globally, it is imperative that insurance companies are sufficiently equipped to cater for policyholders’ claim demands. Stringent regulations and a slow economy, which adds to the overcapacity in the industry – the existence of many insurers competing for a small market share –, affects the companies.
The risk modeling techniques used by insurance companies to determine the value of the premium often tend to analyze one fundamental question “how likely is it that this specific customer will make a claim?” A high risk policy will have a higher premium compared to a low risk policy. Risk in this case refers to the exposure of a motorist to any probable loss involving the insured vehicle. PSV’s are generally considered high risk policies.
In the recent past, auto insurance companies have streamlined their modeling techniques. In the Kenyan automobile industry, the premiums the insurance companies often charge respond to various other subjective factors other than the risk quotient of the insured. Such factors include sex of the driver, how the vehicle will be used and availability of antitheft devices among others. This may result in underpricing or overpricing of premiums. This may lead to either consumer exploitation in the case of overpricing or the insurance company facing losses in the case of underpricing. Keeping in mind that 15 out of 36 general insurance companies succumbed to underwriting losses in the financial year ending December 31, 2015, various other automobile insurance companies face the risk of collapse unless urgent action is taken.
