Marine insurance underwriters are optimistic that the failure by the industry to realize the result that was envisaged when the government directed all cargo to be insured locally will now be realized once the Kenya Revenue Authority (KRA) Integrated (iCMS) system is fully operational.
The overall performance in this class of insurance has significantly improved since the National Treasury directive to enforce Section 20 of the Insurance Act came into effect on 1 January 2017. Given the import volumes into the country, the premium remains much lower than what the industry anticipated. Efforts have been made between underwriters and relevant government agencies to digitize the purchase process.
Claims of undercutting have rocked the marine cargo insurance business as a record number of players entered the segment. The Insurance Regulatory Authority (IRA) had in the past raised concerns over unsustainable premiums.
Ideally, insurance firms are supposed to pool together enough premiums to be in a position to compensate all importers who incur any marine-related risk within the coverage period. Undercutting claims put firms at risk in case a high number of their clients lodge claims against loss or damage of their cargo during transportation.
Each of the nearly 40 general insurance underwriters and members of the AKI have now agreed to work with the Kenya TradeNet Single Window information processing system to relay all the marine cargo insurance and custom bonds to importers and the KRA.
AKI Executive Director/CEO Tom Gichuhi explained that the resolution was important for all the insurers to enhance efficiency and transparency of importation information processing, a major cog in the international trade wheel.
“During the AKI General Insurance CEO’s forum, member underwriters unanimously agreed that with immediate effective, customs bonds shall solely be processed through the KenTrade – National Electronic Single Window System portal in line with government policy,” said Gichuhi.
The KenTrade portal provide integration between Kenya Revenue Authority, the insurers and all stakeholders in the import, export value chain and Government Partner Agencies (PGA).
“Insurance industry players are all aligned to the need to comply with government policy that calls for cargo handling agencies to interface their systems with KenTrade’s Single Window System portal ahead of the 1st September 2019 compliance deadline set by the Head of Public Service Joseph Kinyua in a circular to all accounting officers of government agencies involved in the import-export ecosystem. We support the decision to use a single-window system as this will go a long way in harmonizing and ensuring proper coordination of cargo logistics in Kenya,” said Gichuhi.
The Kenya government, noted Gichuhi, was cognizant of the fact that the cost of doing business and efficiency at all ports of entry are contingent upon actions by all stakeholders including public sector agencies, shipping lines, clearing agents, insurers and cargo owners.
Following the directive, the MCI has performed considerably well compared to the years before 2017. The gross written premiums was Ksh 2.3 billon compared to Ksh 1.45 billion in 2016, representing an increase of 59%.
“This was a good increase albeit less than what was expected,” said Mr. Gichuhi in an earlier interview, adding that MCI still has a lot of potential for growth given that the total national imports stood at Ksh1.58 trillion according to the Kenya National Bureau of Statistics (KNBS) Economic Survey of 2016.
On financial ability, the industry currently has a direct capacity of over Ksh23.3 billion, which has been beefed up through consortiums of reinsurance to cater for very huge imports such as consignments of bulk grain and oil.
“Bulk imports are not new to the industry and even before the directive was issued, insurers were handling a substantial part of the bulk of imports,” Mr. Gichuhi responds to the concerns of capacity, which have been raised in the past by some bulk cargo importers.
AKI has been conducting capacity building and awareness campaign by partnering with key players that include Kenya Association of Manufacturers (KAM), Kenya International Freight and Warehousing Association (KIFWA), various importer associations and Intergovernmental Standing Committee on Shipping (ISCOS) among others.
The Maritime and Shipping Department, the docket under which the MCI falls together with IRA are addressing policy-related issues through the National Treasury and Parliament to create an enabling legal environment for the marine cargo insurance.
A research study carried out by AKI in 2013 identified factors that contribute to low uptake of MCI in the country. The study blamed unawareness among importers of the availability of local marine insurance to cover their incoming cargo.
Buying marine cover from Kenyan insurers has several benefits to the national economy, importers and insurance industry. At the national level, it prevents repatriation of billions of dollar to foreign underwriters, easing the country pressure on foreign exchange.
When they buy locally, importers can prove that the insurance cover was taken since they get policy documents from insurers. They are also able to negotiate with insurers for favourable terms and they can understand the premium components.
Besides, the claims are settled easily and in case of delay or decline of honouring payment, the importers can refer the matter to IRA, the industry regulator, for appropriate action.
Procuring locally allows the insurance industry to build capacity for insuring bulk imports. It also helps the industry to develop marine cargo insurance data.
“Importers generally buy CIF if they are new in international trade or they have very small shipments. It is a more convenient way of shipping since they don’t have to deal with freight or other shipping details, but it comes at an extra cost,” Nancy Karigithu, the Principal Secretary in the Shipping and Maritime Affairs told Freight Logistics in an earlier interview.