Insurance
Regulatory Frameworks
“The insurance landscape is set to change once
changes currently being implemented in the industry
take root. Some of these changes include the Risk Based
Supervision guidelines, Takaful guidelines and the
creation of the Financial Services Authority.” Patrick
Tumbo Chairman Association of Kenyan Insurers.
Following the new capital adequacy guidelines
introducing the concept of Tier I and Tier II capital, capital
can only be invested in government bonds, treasury bills
deposits, cash and cash equivalents that constitute Tier
I capital. This will significantly lower participation of
Insurance companies in the Corporate Bonds market, as
corporate bonds are not eligible investments for the Tier I
capital. According to the Cytonn H1 2017 Insurance Sector
Report.
The insurance regulatory authority also introduced
the new capital adequacy assessment framework based on
the nature of business carried out by the insurers to try
and match the risk activities of organizations to their core
capital.
The recent Financial Services Authority bill seeking
to merge and takeover the functions of the Insurance
regulatory Authority (IRA),Capital Markets Authority
(CMA), Retirements Benefits Authority (RBA) and Saccos
societies regulatory Authority (SASSRA) . This will provide
a one stop shop for supervision of financial services and
eliminating gaps in regulation to increase protection of
consumers.
The reduction in the number of regulatory bodies
will formulate guidelines cutting across all the financial
services including the insurance industry which might
affect how it has previously ran, however the new body
will be beneficial in containing malpractices in the
insurance industry such as under pricing of the insurance
companies.
The Bima Intermediaries Association of Kenya (BIAK)
is of the opinion that it’s a step in the right direction
owing to the modern day realities of the increasing mix
up services and attendant risk.
The Insurance regulatory Authority plans to roll out a
new set of rules targeting Takaful since the insurance act
is not appropriate for the growth of Takaful. This will tap
into the growing Islamic financial services which reached
Ksh 193.64 trillion in 2015. Takaful is an Islamic insurance
based Sharia law.
FUTURE TRENDS
Blockchain Technology
A blockchain is a digitized, decentralized, public
ledger of all crypto currency transactions. Blockchain
ledgers are tamper-proof block of records that can be
shared among multiple users. According to report dubbed
‘Blockchain the $5 billion opportunity for reinsurers’
by PWC, the technology can be deployed across the
reinsurance and retrocessional value chain.
A risk can be ceded/retroceded using a blockchain
application specifically designed to process treaties,
notify all parties and then process premium and
commission payments. The technology could also be
applied to speed up claims processing and verification.
The blockchain technology has the potential to drive
radical change in the insurance industry while improving
transparency and outcomes across the entire value chain.
Intermediaries or brokers do not have to be written out
of the equation. Rather, they can become early adopters
of the technology. Admittedly, this shift will be hardest
on the established monoliths in the industry, for it will
require uncomfortable transparency and price corrections
in their business models TB
NOVEMBER 2017 • THINK BUSINESS | 19