The Marine Cargo Insurance (MCI) sector is set to make steady progress following the integration of the Kenya Revenue Authority (KRA), Kenya Trade Network Agency (KenTrade) system, and the Association of Kenya Insurance (AKI) MCI data.
In order to support the insurance industry in Kenya, Section 20 of the Insurance Act expressly prohibits the placement of “Kenyan Business” with non-Kenyan or foreign insurance markets except under certain circumstances. The Treasury sought to enforce this provision when it issued a directive to implement Section 20 in 2017.
The industry recorded a significant increase thereafter with MCI uptake increasing by 36% from KSHS 2.5 billion in 2016 to KSHS 3.4 billion in 2017.
It also recorded a 32% increase from KSHS 2.5 billion in 2016 to KSHS 3.3 billion in 2018. Uptake has since declined steadily due to a lack of enforcement and delayed integration between the industry stakeholders involved in MCI, KenTrade said in a response to a recent email interview.
The uptake slumped to KSHS 1.7 billion in 2020 at the height of the Covid-19 pandemic. This trend reversed in 2021 as the economy recovered when the uptake grew to KSHS 2.2 billion and eventually hit KSHS 2.4 billion at the end of 2022.
Other factors cited for low uptake include a lack of enforcement of MCI policy directives. However, AKI, Insurance Regulatory Authority (IRA), Kenya Revenue Authority (KRA) Intergovernmental Standing Committee on Shipping (ISCOS), and KenTrade have held numerous training and stakeholder engagements to sensitize the industry on the new requirements.
Despite this enhanced awareness, there is a lack of enforcement by key regulatory authorities. However, KenTrade commenced integration with KRA to share MCI data for covers issued by insurance companies and hopes to cure the prevailing challenges of low uptake.
The integration will provide key information required for KRA to enforce the MCI directive for all imports destined for the country, according to KenTrade.
KenTrade is part of a task force that was directed to come up with a solution for digitizing MCI. The task force agreed that KenTrade will facilitate the processing of MCI covers by allowing importers and exporters to submit MCI requests to insurance companies through the National Electronic Single Window System (NESWS) the agency runs.
In the long term, KenTrade is expected to integrate with MCI portals to facilitate the validation of Unique Consignment Reference (UCR) details, and the transmission or submission of approved MCI certificates to the NESWS and KRA.
KenTrade has so far onboarded 28 Insurance companies on the NESWS.
“Automation of the application and the processing of marine covers will not only enhance visibility among industry stakeholders. It will also provide a system mechanism for the enforcement of MCI among importers and exporters,” KenTrade said.
AKI has implemented an MCI Digital Certificate (DMVIC). KenTrade and AKI partnered to streamline the sharing of digital certificates with the KRA by integrating the NESWS with DMVIC. This integration will ensure that all covers issued by insurance companies are shared with KenTrade.
This means that the certificate issued by all the insurance companies is uniform and issued from a centralized platform. AKI then integrated with KenTrade to enable the other stakeholders to confirm and verify that valid insurance covers are in place.
The incorrect use of Incoterms has been identified as one of the major challenges facing the implementation of the MCI directive. The joint task force comprising AKI, IRA, KRA, and ISCOS continues to sensitize importers and exporters on the applicable Incoterms required for the enforcement of the MCI directive.
Projections of written premium for local MCI at the time of issuing a directive to enforce Section 20 was more than KES.20 billion; the assumption was that the requirement for local MCI for all imports would be enforced, unfortunately, this was not well coordinated, according to AKI.
KenTrade has since come up with the Trade Facilitation Platform which connects all stakeholders in the import and export business. The industry, according to AKI, has the capacity, and where necessary they have partnered with international reinsurance firms to provide additional capacity.
“We believe KenTrade’s TFP is robust enough to keep up with the processing, execution, and cancellation processes involved in Bonds management. We have proposed to KenTrade to incorporate this as its part of the trade, which they facilitate” AKI said.
After digitizing the certificate, the second phase of the campaign will be to engage other sector players including Kenya International Freight and Warehousing Associations (KIFWA) importers, exporters, and financiers to bring them up to speed with the progress that has been made on the platform and educate them on the benefit of taking local MCI.
“The initial challenges of having everyone on a single platform and enforcing the requirements are still being ironed out. Once the system is fully operational and all players are on board, we will be able to tell what areas require more strengthening. We also need to sensitize government agencies on the need to capture Section 20 of the Insurance Act under their regulations on the background of the ‘Mandates under other laws’ sections. This will provide a strong impetus for enforcement,” AKI said.
When importers buy insurance locally, they can lodge their claims in Kenya where the Insurer is registered and bound by Kenyan law. The country will be able to save on foreign currency which would otherwise be exported to buy insurance.
Local insurance will translate to more earnings by Agents, Brokers, and Insurance Companies, which means more tax for the government the creation of employment, and increased capacity in the financial sector.
This article was published by an editorial consultant and can be reached via githua.kihara@gmail.com
