When politicians invest in insurers, trust gap widens

First, in the insurance industry, a firm could hold several insurance product lines including medical insurance, automobile and property insurance, life insurance products such as annuities and pensions, and other smaller categories including maritime, and travel among other products. Today, we shall focus on the first three product lines.

In banking whereby depositors may prefer banks with political connections, borrowers should be warry of politically exposed banks. But in insurance, it is a much harder sell.

Trust in the insurance sector is already staggeringly low. Business Talk already ran a much-quoted in-depth exposé on low trust levels and remedies in the medical insurance space back in 2021. However, now let us expand into insurance in general and with the political angle in makes the situation worse.

A political decision in 2009 with a compliance window ending in early 2013 saw the Insurance Act modified direct and indirect shareholding capped at 25 percent per insurance firm and sadly included management restrictions as well as foreign ownership limits.

This hurt many insurers by forcing them to take on unequal investors, often politicians. Similarly, other politically related newer firms were able to sneak into practice after the rules change.

A consumer logically questions the ability of an insurer that is politically connected as to whether they truly hold adequate assets and reserves to payout claims in the event of a catastrophe. In Kenya we do have strict rules on insurance reserves held by firms. Our Kenyan insurers must invest their assets according to Insurance Regulatory Authority (IRA) investment guidelines and submit an investment policy to IRA.

They must also keep a statutory deposit with the Central Bank of Kenya in Kenya Government securities. As for general insurers, the statutory deposit is the higher of Sh5 million or five percent of total assets. Those deposited securities are protected for policy liabilities. But we do not require detailed public disclosures of what securities or amounts are held per type of insurance policy category or where they are specifically held, like in the United States or Australia.

How about whether the insurer does what is right for their insured customers and actually cares for them? What consumers really want to know to make informed decisions about which medical, property, and automobile insurance firms to chose are the overall rejection rates of all types of claims that the insurance company handles, not just those that make their way to IRA for resolution.

As a Kenyan citizen, we would ideally want something very easy to understand like what happens in other countries: “We received 10,000 medical claims, paid 8,200, partially paid 700, and rejected 1,100, giving us an 11 percent rejection rate.”

If politicians did not hold shares in insurance firms, perhaps we in Kenya would have more transparent disclosure requirements similar to the United Kingdom whereby insurers have to disclose claims registered, claims accepted, claims rejected, claims acceptance rate, total claims payout, average claims payout, and complaints arising from claims.

Continuing on trust dimensions in politically exposed insurance firms, an integrity violation of consumer trust includes an insured individual finding it challenging when an insurer refuses to cover a claim and their recourse involves filing a complaint with IRA.

If the insurance firm is politically exposed through shareholding and everyone working in regulation knows those connections, who would be willing to challenge the political ownership and force a resolution?

IRA does publish a Claims Settlement Report on a quarterly basis where one can view the complaints against insurers as well as a rather complicated hard-to-read claims payout ratios and some insurers seem missing from the lists. More politically exposed insurers seem to have higher proportions of unresolved versus resolved claims cases.

In summary, do your research on political connections in insurance companies prior to purchasing policies. Understand claims payout rates and make an informed decision. Do not merely fall for flashy marketing material with attractive models on the covers.

Join Business Talk next week as we continue the exposé and delve into the trustworthiness of the insurance industry’s life, annuity, and pension products.

Have a management or leadership issue, question, or challenge? Reach out to Dr. Scott through @ScottProfessor on X or on email [email protected]