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Hike in comprehensive motor insurance premiums rubs Kenyans the wrong way

Insurance customers have been burdened with an increase in insurance rates beginning January 1, 2022. A number of insurance companies have indicated that the increase will be up to 50% of premiums while others have indicated that they will not offer a comprehensive insurance cover for vehicles that are older than 12 years or those that have a value of less than Ksh. 600,000. An increase in the premiums will make insurance more expensive in a market that has been struggling to increase its penetration and dealing with fraudulent claims.

The decision to increase the premiums has however hit a snag as the Kenya Human Rights Commission (KHRC) moved to Court accusing the Insurance Regulatory Authority (IRA) of allowing the illegal increase in premiums as well as barring vehicles that are over 12 years old from accessing a comprehensive cover.

The human rights body argues that IRA has contravened the law by allowing the increase of premiums without public participation. Motor vehicle insurance is mandatory in nature and therefore, KHRC argues that the decision to increase the premiums arbitrarily is unjustifiable, a violation of consumer rights and illegal. The court will rule on the matter this month.

While insurance companies fault the surge of claims as well as fraudulent requests for compensation as the reason for an increase in premiums, KHRC argues that this is not a sincere reason as the law provides for safeguards that allow the companies to handle fraudulent claims.

It is, however, notable that 2022 is an election year and it is certain that insurance claims will go up. Importantly, the volume of cars has been on an upward trend in Kenya. Therefore, the probability of accidents occurring are exacerbated, resulting in more claims being filed.

The reduction in information asymmetry in the Kenyan insurance industry has also led to better informed customers, increasing the likelihood of insurance claims being filed compared to a situation where the clients would handle the claims on an individual basis without having to involve insurance companies.

Although the increase in the claims ratio has been deemed as an adequate justification to increase premiums in blanket for the entire insurance industry, the industry should consider increasing premiums for clients based on their accident history. Nevertheless, a balance is needed to ensure that the consumers do not bear the burden of higher prices. 

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