Car insurance premium hikes were based on a lie: Report

Insurers plotted to hike premiums for motor vehicle covers on the basis of a lie that the industry has been making losses.

While the industry’s financial performance has been declining over the past eight years, it has not made any losses, data from the Kenya National Bureau of Statistics (KNBS) shows.

The 2021 KNBS statistical abstract shows that between 2014 and 2020, the insurance industry did not report any losses, although its profits plummeted by 71.4 per cent, from Sh17.2 billion to Sh4.9 billion.

In the five years to 2020, the KNBS report shows, profits for the sector fell by 61.6 per cent, from Sh12.8 billion in 2016.

The industry recorded dwindling profits as premium incomes rose by Sh75 billion (or 47.7 per cent). By 2014, the insurance industry gross premiums were Sh157.7 billion, growing to Sh232.9 billion by 2020.

Over the eight years, however, claims in the industry’s general business increased by 34 per cent (or Sh14.7 billion), from Sh42.7 billion to Sh57.4 billion.

Yet when insurers announced that they would increase premiums for motor vehicle covers by up to 50 per cent beginning this January, their argument was that the industry was making losses due to increased claims.

The firms also plotted to eliminate comprehensive covers for motor vehicles that are older than 12 years or with value below Sh600,000, before the High Court on January 12 stopped them pending hearing of a case challenging the planned hikes.

The Kenya Human Rights Commission (KHRC) has sued the Insurance Regulatory Authority (IRA) and the Association of Kenya Insurers (AKI), arguing that because motor-vehicle insurance is mandatory, premium hikes would be discriminatory, unjustified and illegal.

“I have considered the petitioner’s grounds in support of the application and oral submissions by both parties. Upon careful evaluation of the same, I find that the petitioner has demonstrated a prima facie case with a likelihood of success,” Justice James Makau said.

KHRC said premium hikes and excluding older vehicles from some covers would affect the economic interest and safety of owners of motor vehicles, third parties and the general public.

“Most of the insurance companies have attributed the increase of premiums to a surge of claims, some of which are fraudulent,” KHRC said in its petition to the High Court.

“This is not a reason to increase the premiums considering that the law provides safeguards which allows insurance companies to repudiate claims that are not genuine.”

It also argued that insurers had failed to involve the public before making the decision, while the IRA failed to protect the public and policy holders.

Data from the IRA shows that between July and September last year, 108,144 claims were closed, out of the 102,641 outstanding claims they had at the beginning of the quarter.

The industry, IRA reports show, paid 12,632 claims in the three months and declined paying 66. But the number of claims reported and revived during the three months was slightly higher than those paid, 14,989.

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