Insurance companies have been warned against price undercutting as the battle for market share in the lucrative marine cargo policies heats up.
Price undercutting or predatory pricing is a dubious strategy where a product or service is set very low, with an intention to drive competitors out of the market, or create barriers for potential new competitors.
Principal Secretary for Maritime Affairs Nancy Karigithu says price wars amongst insurers will hurt the business.
“The rates are falling and it is not good for business,” she said in Mombasa during a Marine Cargo Sensitization Workshop at Bandari College on Monday organised by the Insurance Regulatory Authority. “We must guard against the repeat of what happened in the motor vehicle third-party insurance.”
She attributed the practice to a cutthroat competition which if not addressed, she said, could result in piling of unpaid claims as has been the case in the motor vehicle third-party insurance segment.
The inability to pay claimants has largely been linked to undercutting of premiums.
“We want professionalism; we want realistic premiums that will be able to support claims in marine cargo insurance,” Karigithu said, urging the IRA to ensure proper pricing is done. “If you (insurance firms) collect so little that does not match the exposure that you have, then what will happen?” she said.

But IRA acting chief executive Godfrey Kiptum said the agency cannot determine the insurers’ rates “since it is a business decision done internally”. “However, as a regulator, we have to ensure that once an insurance company has issued a policy note, it honours the part of the agreement when the times comes, even if it offered the lowest rate possible,” he said.
Maritime players attending the workshop said bitter price wars have made the insurers to significantly lower the marine cargo premiums, and the firms may not be able to pay claimants in the event of an accident.
Kenya has been losing between Sh20 million and Sh25 billion annually in marine insurance premiums ceded to foreign off-shore companies, Karigithi said.
According to the 2015 Economic Survey, Kenya imports goods valued at Sh1.57 trillion, 90 per cent of which were covered by offshore insurers.
At the current annual growth rates, imports are expected to top Sh2 trillion to 2.2 trillion by 2020, yielding a potential marine cargo insurance spend of between Sh28 billion and Sh30 billion annually.
To curb this loss, the Treasury Cabinet Secretary Henry Rotich issued a directive that Section 20 of the Insurance Act, introduced in 1999, should be implemented starting January 1 this year, 17 years after it was passed.
Source: The Star

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