Nature and challenges of claims management by reinsurance companies in Kenya

Abstract

Reinsurance is a highly complex global business that is uniquely not limited by territorial boundaries and can perhaps be described as a pivot on which the insurance industry swings. Insurance cedes part of their risks to reinsurance for their own cover against potential losses. Humongous risks are transferred to insurance but the effects hit at the instance of losses. To absorb these effects, reinsurance contracts provide for modalities of indemnifying insurers against claims the latter pay to the original insureds. The Kenya insurance industry heavily relies on reinsurance for management of claims. Reinsurance industry in Kenya is growing currently represented by seven companies which have established offices in the country. There are other reinsurers who support Kenyan insurance industry from outside the country. This notwithstanding, there has been a concern by the body regulating insurance in Kenya that claims service level is contributing to the slow uptake of insurance and therefore low penetration. There are impeding issues that constrain seamless business relationship between the insurers and the reinsurers. The objective of this study was to determine the nature and challenges of claims management by reinsurance companies in Kenya. This study adopted the census survey method where a structured questionnaire was administered to four reinsurance companies that carry out claims function in the country. The study found that incorrect cessioning of claims and delayed settlement of reinsurance premiums by cedants as the principal challenges curtailing the speed with which reinsurers ought to carry out their claims management obligation. Late notification of motor claims and demand of payment for claims which exceed agreed upon limits were other challenges that need to be addressed. The study recommends legislation of an association for reinsurers to provide a formal forum where issues of collective concern can be addressed by all reinsurers. Further, training of staff in ceding companies on reinsurance claims aspect was also suggested for advancement of knowledge necessary to effectively manage claims. Drawbacks encountered while carrying out this study were mentioned. This was the first research in the concept and context therefore the study recommended areas for further study to identify other challenges which should be addressed for enhancement of insurance penetration in Kenya. The study also highlighted implications for policy and practice. These are the need to strength compliance platform to policies designed by the government through the IRA for timely settlement of premiums as well as notification of claims. Further, close working relationship between reinsurers and reinsureds is necessary for satisfactory performance of claims management function in order to raise the attitude and uptake of insurance by potential insureds.