•The slowdown in the returns from the real estate market has further compounded the problem, with many insurance firms have invested heavily in property, an asset that has become increasingly difficult to liquidate.
•Despite advancements in technology such as artificial intelligence and robotic process automation have streamlining claims management, cash flow problems remain a significant obstacle to timely claim settlements.
Image: JACKTONE LAWI
Insurance firms are in the country are struggling with cash flow challenges to offset claims leading to delays according to Insurance Regulatory Authority and reinsurer Kenya Re.
This follows tough economic times that have seen their investments mostly real estate property fail to deliver anticipated returns.
The economic downturn, particularly the poor performance of investments, has worsened liquidity problems for many insurers
Kenya Reinsurance Corporation Managing Director Hillary Wachinga pointed to liquidity concerns as a major challenge for local insurers even as claims increased majorly due to the floods that hit the country early in the year and the subsequent political unrest.
He said that over the past couple of years, claim settlements, particularly within the Kenyan market, and has remained quite a pain point for many customers.
“Floods, for instance, we understand cost of the economy upwards of shillings five billion. When you look at the recent political figures, again, that cost us billions in destruction of properties and also in what we call business interruption and flight of capital,” said Wachinga.
Despite advancements in technology such as artificial intelligence and robotic process automation helping in streamlining claims management, cash flow problems remain a significant obstacle to timely claim settlements.
The slowdown in the returns from the real estate market has further compounded the problem, with many insurance firms have invested heavily in property, an asset that has become increasingly difficult to liquidate.
Wachinga highlighted that in the past five years, the liquidation of real estate properties has been a significant challenge for the sector.
Insurance Regulatory Authority Director of Supervision Kalai Musee, said that the inability to convert these investments into cash has exposed insurers.
“We have been in discussions with these companies to ensure they address their liquidity issues. They cannot use properties to pay claims, so we are pushing them to liquidate their assets,” Musee said.
Despite the liquidity challenges that have seen more insurance firms collapse in the past two years, the industry leaders assured the public that mechanisms are in place to protect policyholders.
Musee explained that Kenya has a Policyholders Compensation Fund (PCF), which provides a safety net for customers in the event that an insurance company collapses.
“We have what we call the Policyholders Compensation Fund, which is designed to step in and settle some claims if a company goes down. While it is not 100 per cent protection, it ensures there is some level of protection for policyholders,” Musee said.
He acknowledged that while the compensation fund may not cover all losses, it plays a crucial role in providing interim relief while the regulator addresses the issues with struggling companies.
The two were speaking on the sidelines the Kenya Re’s first ever-Global Insurance CEOs summit in Nairobi.
From the sessions it emerged that the insurance sector's challenges extend beyond liquidity.
Wachinga called for the harmonisation of insurance regulations across different markets to ensure a more consistent regulatory framework.
The summit, which has brought together over 340 CEOs from across Africa, the Middle East, and Asia, is seen as a critical platform to address these challenges.
He pointed out that the lack of regulatory uniformity across borders poses significant challenges for insurers operating in multiple jurisdictions.
“We really need to adopt global best practices in how we approach regulation, especially in cross-border markets. Right now, there is no homogeneity in the way regulations are enforced, and that is something we need to address to ensure a level playing field for all players,” said Wachinga.
“This is our first-ever CEO summit in the forty four year history of Kenya Re, and we have brought together some of the brightest minds from 83 countries to discuss how to tackle these issues and ensure the sustainability of the industry,” he said.
As the insurance industry in Kenya continues to navigate economic challenges, industry leaders are optimistic that the ongoing discussions at the Insurance CEOs Summit will provide a pathway to greater resilience.
Musee stressed the importance of collaboration between insurers and regulators in addressing these challenges.
“The topics being discussed here are about the changes happening in the industry, which are posing new risks to both players and regulators. It’s a crucial occasion to discuss how to move forward and ensure the industry remains stable,” he said.