NAIROBI, Kenya- Kenya’s insurance sector is facing a mounting cash flow crisis, with companies struggling to settle claims promptly.
This challenge, highlighted by the Insurance Regulatory Authority (IRA) and reinsurer Kenya Re, is rooted in a combination of tough economic conditions and faltering investments, particularly in real estate.
As property investments fail to yield anticipated returns, insurers are finding it increasingly difficult to meet their financial obligations.
Kenya Reinsurance Corporation’s Managing Director, Hillary Wachinga, pointed out that liquidity concerns are a pressing issue for local insurers, exacerbated by recent natural disasters and political unrest.
“Floods alone cost the economy upwards of five billion shillings,” Wachinga noted. “And with recent political disruptions, we’ve seen billions lost to property damage and business interruptions.”
The downturn in the real estate market has only deepened the problem. Over the past five years, insurers have heavily invested in properties that are now proving difficult to liquidate.
Despite advances in technology, such as artificial intelligence streamlining claims management, cash flow issues remain a critical obstacle.
IRA’s Director of Supervision, Kalai Musee, echoed this sentiment, emphasizing that insurers cannot use properties to pay claims. “We are pushing them to liquidate their assets to address these liquidity issues,” Musee stated.
The liquidity crunch has led to the collapse of several insurance firms over the past two years. However, the industry assures policyholders that mechanisms are in place to provide some relief in case of company failure.
Kenya’s Policyholders Compensation Fund (PCF) steps in to cover part of the claims when an insurer goes under. While Musee acknowledges that this fund isn’t a blanket protection, it serves as an interim relief for affected policyholders.
Despite these efforts, the strain on liquidity remains a pressing concern for insurers, who are now working with regulators to find sustainable solutions.
Wachinga emphasized the need for harmonizing insurance regulations across different markets to create a more consistent framework. “Right now, there’s no homogeneity in how regulations are enforced,” he said, stressing the importance of adopting global best practices.
The liquidity crisis was a major topic at the Global Insurance CEOs Summit, hosted by Kenya Re in Nairobi. Over 340 industry leaders from across Africa, the Middle East, and Asia gathered to discuss strategies for resilience.
Wachinga described this first-ever summit in Kenya Re’s 44-year history as a critical platform to address these challenges and explore the future of the industry.
Musee stressed the importance of collaboration between insurers and regulators in finding long-term solutions.
“The discussions here are about navigating new risks in the industry and ensuring its stability,” he said. As the insurance sector continues to grapple with economic hurdles, these dialogues offer hope for a more resilient future.
