CURRENT STATUS OF THE MOTOR THIRD PARTY LIABILITY (‘MTPL’) INSURANCE MARKET PRACTICES IN KENYA

Introduction

Road traffic injuries and causalities remain a huge public health and development burden to the Government of Kenya with detrimental effects on households. Insurance of motor vehicles against third party risks is compulsory in Kenya and it is an offence for any person to drive a motor vehicle without the insurance cover. The essence of making motor insurance compulsory is to protect the public from unexpected losses arising from motor accidents.

Although other classes of general insurance have been growing, motor insurance remains the most significant business class as a whole and has for long had claims and combined ratios at unsustainable levels.

Therefore, a comprehensive study aims to review the MTPL business in Kenya to provide an overview of the motor insurance industry’s operations, identify the challenges and also the proposed solutions for strengthening the current framework. This shall lead to not only increased penetration and operational effectiveness of MTPL insurance but also improve overall social welfare.

In this regard, Actuarial Services East Africa Ltd (‘ACTSERV’) was appointed by the National Treasury of the Government of Kenya to provide consultancy services for the review of the Motor Third Party Liability (‘MTPL’) market in Kenya. The consultancy is coordinated by the Chief Executive Officer, Insurance Regulatory Authority (‘IRA’).

An assessment report of the current status of the MTPL insurance market practices in Kenya has been prepared as a draft and is subject to consultation through the delivery of a stakeholder seminar before it is finalized. The assessment report examines the industry practices and regulatory requirements specific to Motor Third Party Liability which entails the following:

1. Accessibility of the MTPL insurance to customers;
2. Distribution;
3. Risk based pricing;
4. Reserving;
5. Claim payment practices;
6. Profitability, product features;
7. Enforcement of compulsion;
8. Fraud;
9. Reinsurance including the potential for a pooling program;
10. Effectiveness of the regulatory framework;
11. Compensation schemes;
12. Availability of information and Information Technology (‘IT’) capacity; and
13. Roadmap of actions and a time bound action plan that sets out the priorities in the sequencing of the recommendations.

Data and Information

The report relies on the data and information as provided to ACTSERV by the insurance companies in Kenya hence the results of the actuarial analysis are dependent on the accuracy and adequacy of the data provided.

The discussions and sentiments drawn from the general insurers briefing sessions, stakeholder engagement fora and the general public survey together with the legal framework governing MTPL in Kenya form a significant basis for the findings presented in the report.

Legal Framework Governing Motor, Marine and Railways Third Party Liability:

In Kenya, MTPL is governed by various laws and regulations namely:

1. The Traffic Act Cap 403 Laws of Kenya;
2. The National Transport and Safety Authority Act of No. 33 of 2012;
3. The National Transport and Safety Authority (Operation of Public Service Vehicles) Regulations, 2014;
4. The National Transport and Safety Authority (Operation of Motorcycles) Regulations, 2015;
5. The National Transport and Safety Authority (Operation of Tourist Service Vehicles) Regulations, 2015;
6. The National Transport and Safety Authority (Operation of Commercial Vehicles) Regulations, 2017;
7. The Insurance (Motor Vehicles Third Party Risks) Act Cap 405; and ,
8. The Insurance Act, Cap 487.

Overview of the MTPL Market in Kenya

In Kenya, the motor business has averaged 37.3% of the total Gross Written Premiums (‘GWP’) collected under general insurance business over the period 2014 to 2018 while in Uganda and Tanzania it amounts to 26.2% and 35.6% of the total GWP respectively over the same period.

The motor private and motor commercial are the largest sub-classes under motor insurance business in Kenya with 45.8% and 42.0% of the motor insurance GWP respectively on average over the period 2014 to 2018. Motor Public Service Vehicles (‘PSVs’) accounts for only 12.2% of the motor insurance business.

The average growth rate in GWP for motor insurance in Kenya, Uganda and Tanzania over the 5-year period was 6.8%, 7.5% and 9.0% respectively. In Kenya, growth rates have been on a decline generally for the motor sub classes apart from motor commercial that registered positive growth in 2018.

Over the five year period ending 2018, Kenya had higher loss ratios (64.3%) in motor business compared to Tanzania and Uganda at 37.9% and 47.8% respectively. The loss ratio for motor business has been lower than non-motor business in Tanzania and Uganda while in Kenya, the reverse is true over the same period.

For the motor subclasses in Kenya, the motor commercial has the lowest loss ratio at 54.4% while motor private and the motor PSV have 72.7% and 62.8% respectively on average over the period 2014 to 2018.

In terms of the profitability, motor business in Kenya has been loss-making over the period 2014 to 2018 while the non-motor business has been making profits. Motor and non-motor business in Uganda has been profit-making except for 2017 when the non-motor business suffered a loss. Tanzania, on the other hand, suffered losses over the period 2014 to 2018 for non-motor business and from 2016 to 2018 for the motor business.

Therefore, the Ugandan insurance market seems to be doing better than Kenya and Tanzania.

Agents and brokers control the majority of businesses underwritten and therefore their impact on insurance is significant. The 2018 insurance industry annual report showed that 51% of the total general insurance premiums was sourced through insurance agents, 41% through insurance brokers and 8% directly.

Expense Analysis

An analysis of the commission and the management expenses for the motor business was undertaken. The analysis is based on financial information obtained from the annual reports of the respective regulators.

The Kenyan experience was then compared with other East African countries, specifically, Uganda and Tanzania over the period 2014 to 2018. The findings are as given below.

1. The net commission expenses as a percentage of net written premiums for the motor sub classes in Kenya has shown a stable trend of an average of 10.0% over the past five years.
2. Uganda has had the highest net commissions ratio on an overall basis and Tanzania has had the lowest.
3. Kenya had the lowest estimated average ratio of management expenses to the net written premiums at 31.9% when compared to Uganda and Tanzania.
4. For the combined expenses, Kenya had the lowest and Uganda the highest ratio of management plus commission expenses to the net written premium.

Country Comparatives

The Kenyan framework has been compared with other jurisdictions namely; Uganda, Tanzania, South Africa, Malaysia, United Kingdom, Brazil, Indonesia and Thailand to identify the issues that might help improve the MTPL market.

Some of the key areas include:

1. The Road Accident Fund in South Africa;
2. The centralised database and the use of the statistical tables in determining the quantum to pay in compensation in the United Kingdom;
3. Insurance Ombudsman in Tanzania;
4. Obtaining premiums from annual vehicle licensing fees and assessments/registrations in Brazil and Thailand;
5. Uganda recently introduced a bill proposing mandatory insurance for government vehicles;
6. The unlimited liability for claims in respect of third party bodily injury or death in Malaysia; and
7. Fund covering third party insurance for bodily injuries in Indonesia.

General Public Survey

In addition to the stakeholder engagement fora, a general public survey was conducted in 18 of the 47 counties to get views on MTPL awareness, the claim and settlement process, the timeliness and adequacy of compensation amounts. The findings are as given below.

1. 70% of the respondents have either been involved in a motor accident or they know someone, close to them, who has been involved in a motor accident.
2. Over half of the respondents believe that injury is the most common result of motor accidents in comparison to death, damage to property or damage to vehicle.
3. On the impact of the motor accident to the victims, 36% of the respondents suffered loss of earnings, 28% change of lifestyle and 27.2% physical disability.
4. The MTPL insurance awareness is still low as less than half of the respondents (45%) were aware of what MTPL insurance entails.
5. Out of those who have ever lodged MTPL claims, only 38% of the respondent received compensation, 37% did not receive compensation while 24.5% are still waiting for the compensation.
6. In terms of the adequacy of the compensation amounts received, more than half of the respondents feel that the compensation was not adequate.
7. On the timeliness of the compensation, 52% of the respondents who received compensation waited for more than 90 days. Only 13% received the compensation within 15 days after lodging the claim.
8. On the delays to settle claims, the main reason for delayed claim settlement is the slow court process at 44% while 22% of the respondents attributed the delay to lack of transparency and information on the claim processes.
9. For the cases where claims were lodged but not compensated, 33% of the respondents attributed the reason to their inability to afford legal counsel while 25% was as a result of insufficient evidence.

Emerging Policy Issues

Some of the key challenges that are apparent in the MTPL market as drawn from the fora, survey, comparison of a framework with other jurisdictions, analysis of premiums and analysis of case law include:

1. Lack of an integrated database;
2. Poor cooperation between the insurance industry players and the law enforcement agencies;
3. Undercutting;
4. Lengthy claim and settlement process;
5. Disparity in policy offerings due to variations in the policy contracts;
6. Delays caused by unpredictable disputes and lack of proper dispute resolution mechanisms;
7. Lack of compensation structures; and
8. Large and arbitrary court awards.

Proposed Solutions

Some of the proposed solutions from the general public survey, the stakeholder engagement fora and comparison of the MTPL market in Kenya with other jurisdictions include:

1. The need for extensive public sensitisation on MTPL insurance;
2. Alternative dispute resolution mechanisms e.g. the use of a small claims court;
3. Amendments in regulations e.g. to ensure mandatory insurance of government vehicles and to harmonise the definition of a vehicle;
4. Establishment of a guaranteed fund;
5. Information sharing through a centralised database;
6. Review of premium rates; and
7. Structured compensation.