New push to increase insurance premiums

Economy

New push to increase insurance premiums


Godfrey Kiptum, CEO of the Insurance Regulatory Authority. PHOTO FILE | NMG

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Summary

  • A price increase would make insurance more expensive in a market struggling to increase penetration by 2.34 percent – the lowest in over 16 years – which was recorded in 2019.
  • The new rates will be determined for certain categories of insurance, as the regulator seeks to strike a balance between the affordability of coverage and the stability of underwriting companies.

The Insurance Regulatory Authority (IRA) is looking to revisit current premium rates, signaling a further push to increase the cost of underwriting in an industry facing price undercutting and disruption in capital levels.

A price increase would make insurance more expensive in a market struggling to increase penetration by 2.34 percent – the lowest in over 16 years – which was recorded in 2019.

The new rates will be determined for certain categories of insurance, as the regulator seeks to strike a balance between the affordability of coverage and the stability of underwriting companies.

The IRA has opened the search for a consultant to recommend changes to the current methods used to calculate the premiums paid by customers in general insurance covering motor vehicles, personal accidents, fire and health.

The regulator believes that current tariffs and risk classification face challenges such as low transparency and arbitrary pricing, even as concerns about the availability and affordability of insurance products persist.

“The current pricing and risk classification face significant challenges. In addition to a competitive market environment, various commonly used risk assessment factors are called into question, ”explains the IRA.

“This mission therefore aims to analyze the current premium pricing practices in the Kenyan insurance industry and the competitiveness of the rates filed with the IRA based on the risk classification.”

The review comes after the IRA said in October last year that 20 insurance companies or 35% of 56 licensed companies were facing a capital shortfall.

The selected consultant will be expected to provide advice on pricing and allocation of appropriate flexible premiums for various general insurance categories.

The proposed premiums must however show what the likely impacts will be on insurers’ capital ratios and affordability for clients.

The IRA wants insurers to choose risk assessment factors that can be accurately determined and also gain customer acceptance without causing business collapse.

Part of the changes will be to deepen the use of client-centric premium pricing, which means that each client’s risk profile will be heavily considered when choosing monthly premiums.

“The Premium rating should be based on the in-depth knowledge of each client’s needs and on designing from that knowledge product for the respective target group,” IRA explains.

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