Why it is not a Merry Christmas for insurers

But insurance companies are fretting over these accidents for a different reason - increased accidents mean a surge in claims that translate into reduced earnings.

However, a big chunk of these claims is fraudulent, said Wilson Maina, the head of Investigations at Directline Assurance, a major insurer of public service vehicles (PSVs), having received more than half of the premium earned by the industry from PSVs.

As the nation eases into the holiday mood and businesses close shop releasing their employees to join their families in different parts of rural Kenya, the risk of accidents increases as PSV drivers frantically try to cash in from the annual urban-to-rural migration.

Thousands of people die each year from road accidents, with victims including drivers, riders, passengers and pedestrians, according to the National Transport and Safety Authority (NTSA).

Most of these accidents occur in December but the insurance companies received the claims in the months of March, April and May.

“This is because after the December break most legal firms open in mid-January and by the time they process the documents for filling it's mid-February,” said Maina.

Directline, which received 60 percent of the PSV insurance claims in 2023, or Sh3.4 billion, saw most of the claims surge in March this year. 

The firm's claims rose from Sh703 million in February to Sh943 million in March. These claims then rose further to Sh1.15 billion in April before trending slightly downwards to Sh1.12 billion in May. 

Fraudulent motor insurance claims tend to be high even on a normal day, with fraud constituting 27.5 percent of the claims, according to the Association of Kenyan Insurers (AKI).

“You will then expect fraudulent claims to go up when there is a higher frequency of accidents and claims,” said Tom Gichuhi, the CEO of AKI.

The festive season does not only have the right environment for accidents, there is also an incentive for people to defraud insurers.

During the festive season, there is more traffic on the roads due to the movement of people going on holiday and others on leave from work.

The transport sector is thus overstretched leaving room for private motorists to practice transportation of fare-paying passengers and goods.

It is also common for people to drive under the influence of alcohol, with official data showing that several accidents were caused by drunk driving. Drivers also tend to drink, or chew miraa, khat, to help them stay awake and go for more trips.

During the festive season, people who had left their vehicles at the garage for months dusted them and put them on the roads.  

“They will panel beat them and get them on the road. Unfortunately, such vehicles are not road-worthy and are prone to accidents,” explained Gichuhi.

It is the same thing that happens on Friday nights and Saturdays. On these days, people aged between 30 and 40 years who had left their vehicles at home for the entire week get them on the road to get to nightclubs at night, said Gichuhi.

Read: How Kenyan insurers can redeem their image for prosperous future

“That is why on Friday night and Saturdays, accidents tend to be more than on the rest of the days,” said Gichuhi.

It is also possible that the owners of these vehicles might not have renewed their insurance covers, raising fears that most of the insurance certificates are fake.

Some matatu crews also violate the Route Service License (R.S.L), targeting routes with good business, especially long-distance upcountry.  

“This further contributes to accidents where short-distance drivers who are not cognizant with long-distance terrain drive end up causing accidents,” said Maina.

Last year, of the Sh5.29 billion worth of premium income the industry received from PSVs, Sh4.27 billion was incurred as claims.

This left the industry with less than Sh1 billion as an underwriting profit, an indicator that insuring PSVs is a high-risk business.

Experts reckon that fraud is the main reason for the diminishing of a vibrant insurance industry as it comprises exaggerated and non-existent claims getting paid at the expense of genuine claims.

Data from the Insurance Regulatory Authority (IRA) shows that it received 12 cases of fraudulent motor accidents, an increase of 50 percent compared to eight in the previous year.  

“Insurance funds are considered to be public funds that are meant to compensate legitimately injured victims who are seeking compensation,” said Maina.

Insurance penetration —measured in terms of total premiums as a share of the gross domestic product—stood at 2.4 percent in the first half of 2024. Insurance penetration for Sub-Saharan Africa was five percent last year while that of South Africa was over seven percent. 

→[email protected]