Looming pike in political covers ahead of August polls

By Steve Umidha

The Association of Kenya Insurers (AKI) – the industry lobby group, is predicting a bounty 2022 for the sector which dodged the Coronavirus bullet last year.

In its projections for the year, AKI yesterday singled out political violence and terrorism indemnity covers as a key insurance class of business that could propel this year’s growth, following an impressive 2021 period in which industry’s premiums by long-term insurers soared to Sh 58.66 billion between January and June of the same year.

The jump, according to the Insurance Regulatory Authority (IRA), represented a growth of 22.6 percent compared to 8.2 percent swell in a similar period last year.  

But the political violence and terrorism indemnity covers – whose appetite is expected to rise ahead of the August general elections, will be a marginal spike according to AKI’s Chief executive Tom Gichuhi.

“While we are expecting the appetite to increase this year, I do not foresee a huge spike owing to the fact that Kenyans have matured and that the exposure may not be as big as it was in the past,” commented Mr. Gichuhi yesterday in a telephone interview.

Adding that, “We are seeing from our members an increasing demand for such covers which are normally signed up from existing policies such as personal accidents and fire covers by policy holders but not as a standalone policy.”

Terrorism and political violence (PVT) insurance covers an individual or company against physical loss and damage, as well as business interruption costs, naturally brought by terrorist act or acts of political violence such as riot, ethnic conflicts, rebellion and insurrection among others that ordinarily ensue during and after national polls – akin to incidents that followed the 2007 polls bedlam.

Standard homeowners’ policies do not specifically reference terrorism but, as your home insurance covers damage to property and personal possessions due to explosion, fire and smoke, acts of terrorism are generally covered.

It is a trend AKI boss says has gathered momentum since 2007 when businesses and individuals alike suffered losses from the violence, prompting the need to take up PVT insurance covers.

“I think we learnt our lessons from that experience and the uptake has been on a gradual growth in the last decade even though we feel public information and awareness is still needed on that front,” said Gichuhi, who also reckons that the overall industry growth in 2022 could surpass last year’s figures.

That growth according to him pivots largely on last year’s government easing of lockdown restrictions and curfew lifting during the third quarter of the year which saw firms recommence near full operations and rehiring.

In fact the December 2021 Stanbic Bank Kenya Purchasing Managers Index (PMI) Survey shows that private sector activities picked up to a 14-month high as demand for commodities and services improved, which added to the signs that the government stimulus policies were gradually kicking in.

The month under review saw output and new orders rise solidly in a period that also saw businesses return to profitability after months of indecisions that had been hampered by the Coronavirus pandemic.

Also expected to boost the sector’s numbers is the minimum capital requirement – an obligation by the IRA which analysts believe is challenging but has inspired a lot of anxiety in the market, but one that will drive consolidation.

“The requirement is challenging and it has inspired a lot of anxiety in the market. But it is my view that the requirement will cause consolidation in the sector, improving the competitive environment so that insurers price risk appropriately rather than conduct price wars,” according to Gauri Shah – an Associate Director leading PwC’s Actuarial practice for the East Market area.

Kenya’s life insurance companies are also now required to value their reserves on a new basis called Gross Premium Valuation (GPV) , a step in the right direction, according to him as “it brings us closer to international best practice.

Indeed IRA already requires a qualified actuary to independently assess the insurance liabilities which is expected to offer confidence on the part of investors and the market overall.