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Fraud and forged claims continue to eat into profit margins of firms in the insurance sector, says Insurance Regulatory Authority (IRA).
According the latest report by the regulator, fraudulent motor vehicle (accident) claims, fraudulent medical claims and forged claims were large contributors to the industry fraud cases reported in last quarter of 2020.
The sector whose penetration level has been on a downward spiral since 2018 is particularly vulnerable to money laundering activities due to the wide range of money transfer processes inherent to the trade.
It includes transfer of ownership to withdrawal at maturity, premium overpayment, premium refunds and other ills some of which are not reported.
Life insurance firms are at particular risk because of the massive flows of funds into and out of their businesses.
Most life insurance firms offer highly flexible policies and investment products that provide room for customers to deposit and subsequently withdraw large amounts of cash with a relatively minor reduction in value – an area that has consistently been a target for fraudsters most of which are inside dealings.
The last five years has, however, seen a growing number of insurance companies adopt innovation and modern technology to help curb the vice.
“On positive trend is lower cost of doing business which may be due to use of technology during the lockdown as a result of Covid-19 as indicated by decrease in direct expenses,” IRA noted in a statement.
In fourth quarter of 2020, general insurance premiums amounted to Sh130.84 billion.
Medical and motor insurance classes maintained a leading position in terms of contribution in general insurance business premium at 33.0 per cent and 34.4 per cent respectively.
Motor Commercial gross premiums decreased with the highest amount of Sh1.97 billion followed by Personal Accident with Sh 1.17 billion.
“The global socio-economic shocks from the Covid-19 pandemic continued to be felt during the quarter under review.
The increase in new infections coupled with the emergence of new strands of the Covid-19 virus remain a challenge to policy makers around the globe,” notes the statement by IRA.
The data shows that insurers reported claims incurred amounting to Sh57.36 billion during the period under review.
This was a decrease of 0.4 per cent from Sh57.60 billion reported in the fourth quarter of the previous year.
Medical, motor private and motor commercial had the highest amounts of paid claims at 37.7 per cent, 26.0 per cent and 22.7 per cent, respectively of total industry paid claims under general insurance business.
Meanwhile, National Treasury in consultation with the Insurance Regulatory Authority is considering an insurance sector overhaul to woo investments and are going all out to pull in investors through public and stakeholders participation on a new insurance policy.
The National Insurance Policy whose public participation ends on Friday aims to strengthen the existing industry policies, legal and regulatory environment for the insurance sector in Kenya.