id ohn 1 to th hen rus iid, ed ffic it’s ity the 7, Thriving on Borrowed Time hy is the insurance sector considered the ‘ugly sister’ of the Kenyan financial services sector? After 50 years as an independent nation, how can the sector account for less than 3% of GDP while the global aver ¢ is 7.5%? Almost $0 years after independence, how is it that the combined assets of the 43 licensed ince companies stand at just about Kshs 64 billion. Taken individually, at least three Kenyan banks have more assets tha entire insurance industry. The entire profits of in 2010 (7.7 billion) were less than the profits reporte Kenya's largest banks in the same year. Damning statistics indeed! Is there hope for the ugly sister? I think it is a fitting tribute to close this book by sharing with you leven reasons why, in my view, the insurance industry has experienced such a slow rate of growth or stagnated, as some might say. No doubt we can and must do better, As an insider in the industry, I will do my part in my corner to bring about the much-needed change. My hope is that as I lead Invesco’s innovative and inclusive business model, I ffort will will be a catalyst for this change. My desire is thae this lisicourage others and ignite positive action for change and equitable wealth creation in the econom My hope is that we will see more transformational leaders that will andon comfortable and predictable ways and embrace changes that the captains of the industry will come together and abandon empty rhetoric and focus on the real reasons that have caused the stagnation of our industry. That we will pursue multifaceted efforts encompassing, all related stakeholders such as the lawyers, the police, hospitals and doctors among others, coming together to seek lasting healing for the sick sister The maladies afflicting the ugly sister are not beyond our individual or collective understanding. I know we all have good dreams but as the immediate former head of the Kenya Anti Corruption Commission, PLO Lumumba, reminded fresh faduates in a recent graduation ceremony, “all those who dream must wake up to the reality of hard back-breaking work to make real progress and to bring real change He was also quick to remind his hearers that we all have a choice je can either choose to amuse people like clowns, or amaze people our actions. Because if it is not done, we are done!” He finished with a flourish. He advised against amusing people under the providing leadership. “There are alre -ady entough clowns out there,” he advised. I couldn't agree more. So, why the lacklustre performance in the insurance industry in Kenya? Reason No 1: Lack of product innovation particularly for the mass market In a March 2010 publication, industry analyst B, ress Mon International writes: “In common with theit counterparts in other countries in Africa and the Middle East, the Kenyan insurers have often produced sub-optimal and undifferentiated products and have competed on price. This needs to cha if the profitability of the sectorThriving on Borrowed Time We in the insurance in lustry have f failed to develop relevant insurance products for the mass market. For this reason, insurance remaine an elitist product and its role in the mobilisation o untapped. estment capital remains to a great exte Insurance is viewed largely as a product for those b are endowed with significant equipment, furniture and b ed in the formal sector. But the formal sector employs only 11 per cent ofthe country’s total workforce. This leaves out the m economic activity which is concentrated carried out by small trader uusinesses and individuals that assets such as cars, ildings. It is thus largely concentrat 1s, small scale farmers and pastoralists, In ‘elop micro-insurance ments. Crop and livestock in recent years, some a rempts have been made to de market si Products have been develope products for ¢ with the support of donors, but it remains ion will go to be seen how fat penetra In May 2011, I saw reports in the b ming’). The agro-chemical services tural extension workers. The product target market, What this shows is that ant and important to the consumes, people their income, insurance product_known as K limo Salama (‘Protected Fa product appears to be a joint effort between a local ins some development agencies and a foreign Provider. It is marketed by agrici appears to be doing well in the if you make insurance relev will buy it regardless of the same way the mass market adopted mobile phones. Some banks and microfinance institutions have introduced ¢ be taken out on every loan, To fareness among wananchi (ordinary assurance, this is a good step. Howeve than being driven by real underwriting and value of the asset being compulsory and to have b credit life citizens) about life itis bad in the sense that rather this creates aw risk relative to the level of risk covered, the insurance product seems to be en imposed on the micro-borrowers. Micro- borrowers have the best repayment record of all with industry averas tegoties of borrowers, it rates rarely exceeding 3 per cent.mn Borrowed Time >f course there are those people who view compulsory insurance of this kind as the best way of increasing the penetration ratio in the insurance ctor. I am not persuaded by this reasoning, however. This is s because human nature is such that we naturally gravitate towards what Wwe believe will benefit us. We also fle pain and discomfort without toe much persuasion. Insurance in this country has often been associated with the latter. My humble opinion is that any demand based on a law will fail to produce the much-need: I concede, however that the problem is complex, requiring a multifaceted approach and lon tetm view to produce the des ts. Ifthe underwriters in the PSV sector were to catch the innovation b we could think outside the box and come up with delightful creativity to offer products that can cover our clients against peculiar risks such as extortion by the dreaded Mungiki sect, for example. Long a thorn in the flesh of playe sector, the sect appeared to witness a resurgence fron havoc in the matatu industry In March 2011, matatu operators from Kayole, Umoja, Dandora, and Kariobangi areas withdrew their vehicles in protest against extortion by the assumed Mungiki gangs, forcin, nmuters to trek long distances to work. Why can thi nnsurable risk: This particular case would be a tough one, but the point being made nevertheless is that we must make insurance relevant to the 4 Public. Then they will buy insurance on their own volition to meet felt need, Reason No 2: a the surface when it comes investment capital Insurance companies play a significant role in managing retirement benefits for both individuals and corporations. Lack of innovation clusion of low income groups have however impacted pension ll, This means that low income workers in sectors of construction, and economic significance such as agriculture, ecurity remain strangers to meaningful retirement benefits. In sect such as construction, part time or casual empl norm for workers. The National Social Security Fund (NSSF) exists, but as currently structured, itis only able to pay out a paltry sum atThriving on Borrowed Time retirement. This situation persists because we have labour laws th allow this to happen. Im South Africa, the trade union movement movement (both of which were hand in hand to en low income ind negotiated benefits 'd by Black South Africans) worked ure that mineworkers, security workers and other workers received not on nut also other employee benefits including health and accident insurance benefie Home secured on pensions were lat ly pensions by loans fhe equation, The impact So significant that some South African h capi ended up with an indi on capital mobilisation has been significant, of these pension funds provided. the empowerment (BEE) movement witl Workers in South Afric country’s bigs lack economic is how low income irect stake in some of that est corporate entities. The BEE movement has had m but the manner in Workers were enabled to ‘sions is a positive step forward towards ed results, which low income have socio-economic equity that w {say this because Kenya is one of the counties that ha ever growing gap between the haves and the hav thing of which we can be proud. Surely the hey Prone to destroy industries and plantations ( election violence in 2008) they had a stake in them, and at theirs or their parent's retirement k out rested on their preservation a huge and ‘nots. This is nc ots would be less (as they did during the post if they knew As itis, their children (today’s youth; are totally disconnected from ow vnership of vast tracts of land tha Once part of their heritage. And given that their of their energies and working life to these f ising that their children (today’s youth) are angry. One potable exception to this undesirable state of afuirs is the Kee a Tea Development Authority (K’ TDA) model, which is cor allows smallholder farmers to own a sh professionally managed. Parents devote the best factories and plantations, it is not si mendable as it are in something big that is also This is one issue over which it would be nice to hear COTU’s Francis Atwoli’s voice ringing loud and clear His voice has reson ided over the of tea farms. Howe luctivity and profitability on these such a big deal if the tea and proposed mechanisation ver, using equipment to boost prod: tea farms would not be pickers owned a stakeThriving on Borrowed Time ter? For them to keep earning paltry sums working as tea pickers on a farm with declining productivity, or for them to own a case, these farm-workers, as le to argue that in exchange for the additional gains from mechanisation, the plantation should secure even further gains for them, in value addition and in the related skills training. In this way, higher value jobs would emerge as viable alternatives to replai ap created by the loss of tea pickers? jobs. Reason No 3: Some insurance companies were formed primarily to Provide services to related part Those Insurance companies formed to provide services to related Parties are first and foremost community insurers or appendages to conglomerates. This is not a strong foundation on which to base growth. The owners of such insurance companies do not see the need to invest in research and development or even customer service, as long as the insurance business is kept within the group/community. The insurer benefits from captive business and as such has no incentive to venture Senior management in such insurers also tend to have minimal input when it comes to strategy. Their concern isjob security, not creativity and innovation. Promoting the greater good by increasing the penetration insurance products or mobilising capital is far from their busines agenda. Not surprisingly therefore, certain insurance companies on adopted the practice of strategic planning recently, and then only at the behest of the regulator! Some don’t even know what strategic planning is all about! But then there isthe nor so small a matter of human greed. Yes, human greed. This is one reason why we have 43 insurers while significantly larger markets like South Africa, with a 16 per cent penetration ratio compared to our 3 per cent, have only In our peculiar scenario of ove: is inevitable, and it manifests itself in complacency, stagnation, priceThriving on Borrowed Time undercutting and marginal profitabilisy. Inadequate internal control systems that leave fraud undetected are another inevitable result Reason No 4: Inadequate use of technology The banking sector is miles ahead of the insurance industry when it g technology. As an industry, we are yet to tap the dtolowe comes to embraci potential of selling insurance on ssaction nd more rween buyers and sellers, ease of access by consume costs bet information for consumers through interactive exchanges tly, Claims processing er line. The ls a claims process would also bene! workflow between insurer, agent, customer and third parties who can all be networked online. Customers can also monitor the progress of their claims online, All this would lead to enhanced profitability. Recently, sion, such as the use of there have been some positive steps in this direc mobile phones to pay premiums. A number of insurers also now have online customer interfaces. Changamka Micro-health, a local medical insurance provider, made technological waves in mid-2010 with the introduction of a medical smart card system. The system was intended to enable mothers to save up towards the cost of childbirth at the country’s largest maternity hospital, Pumwani, by topping up small amounts of money through a mobile-phone based money transfer facility. However this is more of a savings product than an insurance product. Appropriate use of technology would bear huge benefits for the industry Reason No 5: A temperamental judicial system The Kenyan judicial system allows for unforeseeable variation in legal system also allows for “out of court injury awards. Further settlements"-in which the advocate of the injured and that of the insuret reach an agreement on behalf of their clients. Thus, the amount of the injury awards/settlements cannot be estimated at the point the polic is sold. This hinders proper underwriting risk assessment by insurers. The exposure is higher in the PSV insurance business because they carry multiple lives. PSV insurers are expected to survive in an environment where they are continuously exposed to liabilities of unpredictable magnitude when accidents happen.usiness can survive in such a scenario, Add to this the fact that ¢ timing within which a case will be settled is unpredictable. What is the soluti no-blame system, with pre-determined awards ¢ {0 Provide a better option also known as Structured Compensation Scheme, Structured Compensation Bill was designed to introduce this kind system. It would benefiall parties. No one would need to-go to cours, enabling all stakeholders to avoid the delays that occur even in the beg judicial systems. Ju layed is justice denied, The case load of our trates would be significantly reduced, leaving them to focus on clearing the back-log of cases that has built up in other sectors ide cartels have grown, seemingly unchecked, In this book, Ihave taken the trouble to expose how the cartels in PSV in causing immense damage to the insurance industry artels also exist in other lines of insurance. Health saatinee and private motor vehicle insurance are other examples, Fome private doctors often collude with their patients to defran insurance compan >F vehicle garages collude with loss assessors nd claims personnel in insurance companies to inflate repair ch ges & {0 Prematurely write off vehicles which they subsequently repair and sell. Tonce heard the story of a staff member of the now defies Kenya National Assurance Company doctor would combine a legitimate prescription for jon with an illegitimate addition for an @xpensive body lotion for her to be obtained from the chemist along with the medication in the prescription. {Another story I heard more recently, is of a physiotherapist ina private hospital who offered ro admit the patient for one day, so thatthe patient could charge the physiotherapy visit to their in-patient medical cove Xou might say these medical professionals were just being helpful, but it is more accurate to say that they were being dishonest. The impacts of these kinds of p en taken in aggregate, have taken a serious tension, growth potential of the insuranc industry, Although some of these cartels may have flourished because of sak internal control systems in some insurance companies, ultimatelyThriving on Borrowed Time ause collusion is involved, they can go unchecked for a time even here companies have strong internal control Recently we heard of a cartel of alleged thieves in the Ministry of Education which was said to have defrauded Kenyan children billions of shillings. The point that Iam trying to make is that fraudulent activities have reached’ level where it is even impacting on both the growth of entire industries and national service delivery! I think we should accept that fraud and theft are zero sum games ~ ultimately nobody wins, At @ personal, corporate, industry and national levels, it is time to say enough is enough. But it all starts with the individual. I am all for better legal systems. I appreciate the role corporate governance must play in e sick and rebuilding our industry and I teach about it all the time in my role asa corporate governance specialist. But ultimately, its transformed people with new mindsets that asting change, not better laws or hter controls. Human beings can be deviously clever and w y to beat the system no matter how efficient the legal system is made. The answer lies in the deep recesses of the Reason No 7: Inadequate pul uutiny of our lawmakers Until our legislators are subject co public scrutiny, they are unlikely to be of the calibre required to enact the right kind of legislation, This is so because some have benefited from the status quo either as investors or asi Some of the lawyers among them may even have benefited from the cartels in the PSV insurance sector. This brings me o a curious anomaly in our new constitutional dispensation. The constitution introduces many provisions that enhance the public scrutiny of aspir: to public office, but we seem to fail to appreciate the urgent subject our law makers to strict public scrutiny. Thus we are faced with the distinctly possible bizarre scenario where some parliamentarians with dubious backgrounds are tasked with vetting people for fitness to serve in public offic Te was refreshing to see applicants for positions in the Supreme Court including that of the Chief Justice being grilled in public to determin their competence for office. We were made to believe that some judg, 2mn Borrowed Time did not make the cut as they did nor pass the integrity or reformers test, ch raises interesting questions he ere in the frst plac But the big question is, when will the people who bribed the judges be grilled? And if some of those who bribed are lawyers, what will be done em? Will the public get to know who they are need to know the backgrounds of all the people that will be seeking lection for public This is one area where we hope that the media ill demonstrate their patriotism and rise to the occasion and help us vet people to ensure that their characters show that they are indeed, fit for leadership, Although nobody is perfect, it is true that leaders are always held to a higher standard, We must therefore collectively hold our leaders to account. Those who would step out to lead must allow us to satisfy ourselves that they are fit and proper to lead us in the proper sense of the word. How else can we be confident that they will lead us in the right direction and with our interests at heart? Even in a school, p are only appointed from among the student Integrity must remain the non-negotiable qualification to lead. We must rise above mere legal provisions and be above reproach. Reason No 8: Lack of a proactive regulatory regime to accelerate growth of insurance Like many of our laws in this country, the Insurance Act was designed some decades ago as a control mechanism to watch over the emerging, insurance industry and has been applied as such over the years. However, the rapid changes in the financial sector in the country and across the borders demand change in tact. The emerging modern consumer increasingly demanding and impatient and the insurance practitioners must rise to the occasion. The applicable laws must create an enabling environment for the industry to move forward. No doubt the sector demands a proact and liberal approach to regulation where the practitioners increasingly ssume the larger responsibility for the management of their business No one can ever wish away the law from the corporate life in any sector,Thriving on Borrowed Time but self-regulation must assume centre-stage in order to foster creativity and spur faster growth. This, I suppose, is the guiding principle in the on-going development of the Risk-Based Supervisory (RBS) regime aded by IRA. There are various other refreshing initiatives as The banking sector seems to have done well in cleaning up its act to spur growth in that sector. If you look at the banking sector, you find that the Central Bank of Kenya is one of the players behind research to promote the inclusion of the masses in financial services. The Central Bank of Kenya is a member of the Financ that publishes ¢ kinds of interestr ial Inclusion Trust — a consortium 1¢ Annual FinAccess Study. This study brings out all trends such as access by youth to financial products. This information aims at helping banks and microfinance institutions to develop appropriate strates 's {© ensure increased penetration of financial services. The insurance industry can benefit from such initiatives. Tadvocate all-inclusive research initiatives that would increasingly bring together the practitioners, the regulator, the local industry and even development partners to increase the pace of growth and development of the insurance industry. Further, the barriers to ent in the sector must be high enough to bar the entry of those who may wish to cause mischief rather than work for honest gain. Similarly, the exit barriers must be steep, and the range o} sanctions on those who may be held responsible for failure in the sector must be made exacting and very painful too. Reason No 9: A culture of impunity leading to lack of public confidence in insurers and unsustainable business models This is the natural outcome of collapsing insurance companies. No less than eight companies have suffered demise in less than fi These failures have had a disastrous impa And, as I wrote this page, the re lator was on the television announcing the failure of Blue Shield Assurance Company, which has been one o} the main PSV underwriters in Kenya. The failure of BlueShield wfurther d ¢ of the insurance industry in the eyes of the insuring public. The loss of public trust is one of the major-and perhaps st important-reasons that insurance ha: d low penetration atio in Kenya It is also the natural result of failure to prosecute those behind the demise of insurance companies. Why such a high rate of failure in the insurance sector? The answer to this question is no doubt complex, but I wonder whether it would b far-fetched to argue that some of the PSV insurers that have collapsed in he past were simply set up so that their shareholders could “eat.” Were 108e companies created to die? This question lingers. The inexcusable failure to prosec se behind the collapses seems to send the message that one ay with betraying the trust of the insuring public, As Business Monitor International pointed out recently, we need a law that expressly provides for “tracing and recovery of company resources diverted to private use” by shareholders or directors ot even management. This is ano in which the Law Society of Kenya could lend a hand to the IR The culture of impunity protects not just senior in insura companies but « downwards to the managers” level. However, illegal practices such as undercutting and bribing under the guise of marketing in order to gain and keep business are rampant not just in PSV insurance, but aso in all other classes of insurance business. Sad to say, anecdotal evidence suggests that this is the case even amon the 50 called “decent” insurance companies, albeit at a different level and in more sophisticated ways, but with similar results, There is little commitment to do honest professional insurance business in the entire industry This trend in corruption has largely contributed to the peculiar rea of a stunted industry faced with increasing risks which at the same time keep attracting decreasing premiums. This is the result of blind price based competition and other malpractices. We are the only industry that gains less with increased exposure. If truth be told, the revenue at the end of the year registered by some insurance companies isn’t the result of honest competition in the market place, but rather it is the result of unfair and unsustainable business practiceThriving on Borrowed Time All these undesirable activities have distorted underwriting, in some cases beyond recognition. Critical responsibilities such as risk ‘management ought not to be in the hands of such unscrupulous people. ‘The fortunes of the industry will only turn for the better when decisive action is taken to root out the cancer of corruption, Urgent and decisive action is needed to move the industry to the next level, The swish of the whip must be heard loud and cles falling upon those out to destroy this industry. The banking sector has done it. I see no reason why we can’t! This ugly sister of the financial sector needs urgent attention rs to be a definite self-destruct mode. We fo save us from what api must all work The LSK, as a major beneficiary of insura also support e-related legal cases, could legal education aimed at helping the publicparticularly the mass market-to better understand insurance policies, and insurance laws, and thus get the most out of insurane service providers. Reason No. 10. Run-away road traffic accidents, the bane of the insurance industry in Kenya Road t in Kenya, Hardly a day passes without reports of some horrendous ffic accidents have become synonymous with public transport road accidents involving public transport vehicles, with de of property and huge loss of life. As I wrote this piece, some news flash reported the death of at least twenty three people in a horror road accident in M. involving a bus. And so the carnage continues unabated. What a horrible and needless waste of human life! Road traffic accidents are the real source of trouble for the insurance industry. This is so because accidents are the obvious entry point for the ambulance chase c rogue police officers, the errant doctors, the thieving staffers and whoever else that wishes to steal from the insurance industry. It is logical therefore that, notwithstanding all the other preventive m to counter the huge perennial losses, stemm g the carnage on Kenyan o the top of their priority list. Iris an accepted iccidents do not just happen. R roads must come close they are caused by human error and mechanical fault, among other factors. In oued Time case, and as others have observed, road accidents are largely caused by absence of basic manners and courtesy on the roads. The winning formula in this war must therefore target changing the human behavior on the road above all else. The following suggestions might hel Amend the Traffic Act to provide for hefty penalties for offenders In other words, make breaching the law very expensive Apply the law strictly and without discrimination. Broadcast the list of convicted offenders widely. Review the rules for driving schools, A friend of mine observed that driving schools have simply become a den of robbers, His ‘on obtained a driving license recently, The young lad came home all excited about his new license. “How did they test you?” The father enquired of the son, “Test, what test? We just drove on the toad!” The son responded triumphantly. The father probed a litt further. “Did you do the reverse?” “No”, Did you do 3-point turn?” “What is that?” The son wanted to know. “Did you do hill “balancing?” The father pressed. “Which bill?” The son now “Did you drive round a roundabout?” “We did not reach there. But dad, we passed! Look, this is my license.” The looked lost ‘oung lad protested rather enthusi: all set to hit the road the, perhaps even as a F 1. We must also tighten the driving test and licensing procedures, especially for PSVs ‘The ad hoc police inspections are a complete waste of time. The better option is a consistent inspection system round the year, Mount vigorous and consistent road safety campaigns in onjunetion with wananchi, Passengers could easily stop the rad carnage if they took personal responsibility to stop speeding Establish a multi-sectoral body such as a standing committee involving the insurance industry, lawyers, police, doctors, donors and other interested bodies to provide and implement comprehensive road accident prevention programs including the promotion of basic courtesy on the road.ving on Borrowe Reason No 11: The lack of a val 2 and the ca: change Our nation seems to tumble from one crisis to another. If its not Goldenberg, it is Anglo Leasing or fuel and maize rip-offs or even drag Peddling. We have now called the Chinese to fix our problems in rosd> making after mega rip-offs where roads made at huge tax-payer expense de bly soon after they were commissioned and rapid developed huge holes that could easily compete with moon-ctaten We truly seem to have lost our grip in value-based leadership and Personal pride in doing good. How do you explain the emer of taking visiting dignitaries toKibera slums by our leaders to witnese the bare horrors of naked squalor; to see firsthand the effects of desradine and dehumanising poverty and the results of failed leadership? Wh, would our leaders take visiting dignitaries to Murang'a to see those of our own who have been Fifty years after political independence, I think we should be doin better. What happened to the heady promises at independence to fight se and illiteracy? But then, some have argued-and I think he-that we are better off than most other African count, why, one wonders, can’t we compare ourselves with t ld? Itis my considered opinion that we have a problem in our value system as @ nation and that that is the crux of the problem in the insur industry as well. The true value of any nation is not necessarily what is set out in the constitution, but rather what we live out day by d: Our value system seems to be inc mised on individualism and obscene accumulation of material wealth. The failures in the insurance industry detailed in the pages of this book can all be traced te the mindless rush to accumulate material opulence through any meane ssary, up to and including dishonest gain, demonstrating loss o values. Those indulging in these practi are simply playing by the law of the concrete jungle which prescribes abbing mania in a society obviously gone awry, I often wonder whether we have lost heare gether as we watch our nation haemorrhage to death without of guilesubmit that our country needs to shun love for money for its own sake and pursue value-based leadership. It is my considered opinion that we re fast losing enduring values such as integrity, love for community, anctity of human life, the centrality of marriage and the family, pride in hard work, basic honesty and genuine Godliness. Instead, lov money appe goal in life. Love for money for sake leads to destructive inequities and unsustainable societies. I he the view that these enduring values will not be found away from God and godliness. The societies which have tried the godless route did not get what they bargained for, ultimately. Any nation that will prosper for the long term must put God in the centre. Godliness produces rea courage, integrity, patience and sacrificial leadership, This I believe is what our country is yearning for. In our endeavour to develop this nation, we must reserve the place of faith in God. This must go beyond what we say and mere statistics which are bandied around carelessly, We must embrace true faith in God that is demonstrated by actions of value-based leadership. We would do well to remember that the true worth and value of leadership is influence that the leader will impart on the Influence is what makes the leadership of nd head and shoulders above any other leader that ever lived. His value-based ‘orld and continues to do so today. It will lead the people of this nation and more so the insurance industry from needless pain and suffering to sustainable prosperity Unless we all change cours Jopt new ways, it seems that we hav boarded an overloaded matatu that is being driven dangerously by a deranged crew. The driver seems to hear the voice known as “greed” calling him ever so loudly. As if to reinforce the message of greed, th graffiti on the matatu includes a row of dollar bills across its body. The policeman waves the matatu to stop, but after a hushed brief exchange ith the driver and the tout, he waves the vehicle on. He obviously pockets some of the day’s takings. We, the passengers, sit smugly and argue that its all Ok even though the vehicle is driven dangerously We will get to our destination faster anyway. Who cares! So far it Io like we are thriving....but are we thriving on borrowed time?Thriving on Borrowed Time ; So What is Insurance? ‘tis the author's desire that the reader be educated, albeit in a small ¥% on insurance as a result of reading this book. History of Insurance Estate fires, particularly in the slums in Nairobi are almost a monthly occurrence. A recent fierce inferno sweeping through the Sinai slums in Nairobi left at least 100 people dead and scores injured, We thus hhave something to learn from the Fire of London not just about the history and importance of insurance, but also about the need for risk management in how we build our residential estates and cities, Insurance would no doubt play a very helpful role in helping the victims of th frequent fire occurrences to protect themselves and their proper better. Nevertheless, one would have to break down the ingrain attitudes of the insurers in Kenya which in silent language holds t People in the slums are not insurable and therefore not worth thi about, at least when you consider the insurance products on offer. Aal, isn’t insurance the preserve of the people with disposable incomes? The cumed not to live in the slums but in the so-called leaf suburbs! ed) St Pat's "THE GREAT FIRE SEPTEMBER | 1666 | hway of the Great Fire of London hxpfen.wikipedia.orp/wikifFile;Greatfie_of Jondon_map.pogThriving on Borrowed Time Sometime in the course of the night of 2nd fire erupted on Pudding Lane, London, in Thomas Farynors t Farynor was baker to King Charles II. At 1.00am, a servant thought he'd died and gone to hell, judging by the sight that greeted him. The house was under the onslaught of bright red, orange, and yellow monsters devouring it with a vicious crackle. Apparently, Farynor hadn't quite extinguished his oven, and smouldering embers had breathed life to nearby firewood. Though the flames were not quite touching him, the servant could feel the intense heat clawing at his hands and face. The smoke made his eyes water so badly, iardly see. He rushed and woke up the baker e fire. They didn’t escape histo: though, for that fire grew to earn the dubious distinction of, “The Great Fire of London” Ie fair to say that the path of the fire was paved with fuel, from the buildings made of wood, to those made of brick and stone having thatched roofs, to wooden sidewalks with no fire-stops inside them, ng burning embers around the stil-sleeping city. And as fate would have it, one of the first structures to burn was the huge yooden waterwheel on the Thames. Lo ficantly reduced the amount of water available in the city. The bucket didn’t stand a chance. Failing in their fight, Londoners took flight. The Thames River swarmed with vessels filled with people trying to save their g A second case of human error after the one at the bakeshop was in the indecisiveness of Lord Mayor Bludworth. Worried about the cost of rebuilding, he stalled on the then standard procedure of destroying the house we path of the flames until a Royal command pushed him to create the “fire-break”. The Trained Bands of London were called in > demolish houses by gunpowder, but often the rubble was too muc tok red before the fire was at hand, and only eased the fire’s wa} onward, Illustrations of that night portray something boiled up from the furnace of death, swirling into the sky and lighting the night li birthing sun. The fire blazed unchecked for another three days, until it halt ‘Temple Church. Then it suddenly roared to life again,What is Insuro towards Westn The Duke of York (later King James Il) wisely ordered the Paper House dem break, This finally put the five-day fire to bed. Some four hundred and thirty acres, including thirteen thousani ; hty nine churches, and fifty two Guild Halls—as much as eighty percent of the city proper—lay in ruins after this disaster. Thousands of citizens found themselves homeless and financially ruined. Loss of life in the fire was surprisingly minimal. Human life, that is. Countless me lives were taken in the form of rats, but that was good riddance for a city that had until then been in the throes of a plague carried by the rodents, Non-fire related deaths ratcheted the number of human casualties to hundreds, with plenty more succumbing to shock and injuries. As new buildings began to spring up from the ruins, so did the business of insurance. The concept was as old as mankind, with the earliest form being a scratch my back and Pll scratch yours arrangement between neighbours in times of tragedy. China led other civilisations in using it in transactions during the Bronze Age, giving credence to the saying “Don't carry all your sne basket” by distributing the cargoes of boats crossing precarious rivers to several vessels, The Italians took things to then Awl documenting of ins contracts in the fourteenth century. These were structured similarly to, and enforced under the same legal principals as, loans. Loans taken from investors were acknowledged with an insurance clause that in the event that the ship was wrecked, the loan need not be paid back. But insurance protection as we know it today can be traced to the aftermath of the Great Fire and a man called Nicholas Barbon. A number of laws and ordinances directly related to the fire were passed to tr Jiminate such devastation from future fires, and by extension, to insure industrial revolution sweeping across the country. One of the laws cted required that each quarter of the city be provided with eight hundred leather buckets and fifty ladders, as well as other fire-fighting quipment. Each house had to have buckets, and the occupants w required to participate in hand-to-hand bucket brigades. Another lav allowed for the incorporation of an organization to indemnify for losse due to fire. The latter law set the stage for founding of the first insurance company.Thriving on Borrowed Time Now, Barbon was a successful doctor, prolific writer, and economist of the time. As he amassed his own wealth, he began to worsy that his wealth was tied up in property that could buen in another fire. He thus promptly opened an office “to insure buildings.” This venture was apparently successful, because in 1680 he founded a partnership and established England's fist fire insurance company, The Fire Offre. na insure brick and frame houses. Later on, another Englishman played a key role in advancing insurance: Faward Lloyd, He opened a coffee house in 1866 and it soon established iselfas a great source forthe latest shipping news across most of the world It was a meeting point for captains and owners of vessels to nevotiate and consult for advie Over time, circumstances called for diversification of the insurance industry to cover all kinds of tragedies. In England today, people ean have their reputation insured, In Japan, people get inaurcse against ‘weather conditions as typhoon, plum rains, ec. And in North America, itis not uncommon to hear of a celebrity getting a part of their body insured, Jennifer Lopez, for example, is said to have arc he behind for USD 27 million, though that pales in comparison ea the whopping USS1 billion for which Mariah Carey is claimed to have insured hi Never mind that the United States was a late entrant to the insurar industry. In that country, colonists’ lives were fraught with dangers thee insurance companies shied away from, including lack of food, wars with nigenous people, and disease. It therefore took more than a hurdieed years for insurance to establish itself there. When it finally did, though, it brought the maturity in both practice and policies that de, during that same period in Europe The modern world leaves little to the imagination when it come insurance types, but c classes are health, life, and liabilit insurance, Life insurance sees a designated beneficiary get sum of money upon the death of the insured, or guarantees th that money if they live beyond a certain age. Health insar expenses incurred through illness o} is an umbrella term for in on cars, property, and pro}So What is insu business mishaps. Other types of insurance abound that are related to these ones, with the market adapting to challenges as they arise Revenue in the global industry is in the trillions. In 2009, G Insurance Premiums were USD 4.3 trillion; the Global Life Insurance Premiums, USD 2.5 trillion; and Global Non-Life Insurance Premiums, USD 1.8 trillion. Some of the challenges the industry has faced globally include visk management in the wake of the global financial crisis, improving property and casualty claims, cost reduction, and changes in sales and distribution. Others include investme sment function effectiveness, privacy and informa ing standards, regulatory reform, and economic and tax policy It is not clear what became of Nicholas Barbon’s insurance company, but Edward Lloyd’s company has survived the test of time, Captains and vessel owners have been replaced by under other members in what has become known as Lloyds of London. Lloyds is not so much an insurance company as it is a business exchange for the global financial market that regulates and implements rules for the market. Invesco is likewise trying to rise from the ashes of a great but artificially instigated fire, where the captains were replaced by statutory ‘management, The fire that burned Invesco and many others before it and more recently Standard and BlueShield was not an accident that could not have been avoided, but a well orchestrated catastrophe by th main actors. Itis often the predatory activities of the shepherds turned wolf that kill enterprise. Its the triumph of unbridled greed. It was the jumph of evil against good that killed Invesco, Many lives were put on the line by the Invesco fire. Such fires burn far and wide and leave untold misery in their wake. But in the famed Kenyan style, the victims are left to lick their wounds and the hit squad mov seeking for meone else to devour. Mission accomplished! You can almost hear the clicking of glasses in hearty congratulations, Colour this impunity Highlight it in red and underline it. God help Kenya!Thriving on The Business of Insurance Insurers probably only come second to lawyers in terms of being the butt of jokes. People fear what they don't understand, and belittle it th mockery to mask their fear. The movie ‘Double Indemnity’, a 1944 Hollywood production acclaimed by the Insurance Information Institute (an American industry lobbying group) as being the best insurance film ever, did not fall into the temptation to romanticise the industry lik other movies on the subject. But at one point, it gave a fair impression of just how important insurers are. The character Barton Keyes (Edward G. Robinson) said passionately, “To me a claims’ man is a surgeon, and his desk is an operating table, and those pencils are scalpels and bone chisels. And those papers are not just forms and statistics and claims for npensation. They're alive, they're packed with drama, with twisted and crooked dreams. A claims’ man, Walter, is a doctor and a blood-hound and a cop and a judge and a jury and a father confessor, all in one.” So, before you equate insurance with law, which is likened to a certain animal (the ass, more commonly known as a donkey), try to understand it-that is, if you do not understand it already At the root of all insurance is the risk of los occurring either by natural means or through a tragedy eg, sickness, fir, theft, accident, or even death. Since these can strike at any time, it i important to be prepared ‘That preparedness comes at a monthly, quarterly or annual price, called a premium. In health insurance, s es there is an additional small fixed amount required for each outpatient visit or drug prescription, That amount is called a co-payment. And so we see that insurance is all about risk management. The act of guaranteeing financial support when a risk materialises is called underwriting. The document that specifies which risks are covered is called an insurance policy, so, insurance consumers ate known Policyholders. The institutions which collect premium fi called insurance anies, or insurers or underwriters, T F premiums in investments with varying tisk profiles such as bonds. Property and shares, and then pay out a claim when the need and all the paperwork is in order. For life insurers, the paycSo What is Insurance? either at death or when the policy matures. In certain cases, an insurer may require you to foot part of the bill, which is predetermined and is specified on the policy document. Such a contribution from the policyholders is known Death under special conditions incurs twice the compensation, called double indemnity. The m red to earlier entailed a couple who were involved in an illicit affair trying to kill the woman's husband by engineering an o ence-falling off a train-so as to get a hundred thousand dollars instead of the fifty thousand dollars that would have been payable in the event of an a& If insurers deal with you as an individual instead of a company, then the related productservices are referred to as personal lines insurance. ‘The insurer may scrutinise your credit history to make a decision whether to issue an insurance policy and how much charges will be asked. This practice is identified as credit scoring or insurance scoring. A portfolio is the record of policies you end up subscribing to. The practice where individuals exaggerate ot inflate genuine claims to increase the value of a payout is referred to as opportunistic retail fraud, Insurance companies are themselves not immune to tragedy. Due to the perennial risk of paying out claims, they factor in a loss ratio when calculating premiums, Loss ratio is the amount of claims against premiums paid They also cover their backs through what is known as reinsurance sharing part of the risk with either a reinsurer or another insures. The latter is known as ‘facultative reinsurance.’ This allows them to manage their exposure to major losses due to, say, major disasters such as regional fires, hurricanes and floods. There are two Kenyan teinsuranee companies, namely Kenya Reinsurance Company Limited and East Africa Reinsurance Company imited. There are also two regional reinsurance companies namely ‘Africa Reinsurance Company and PTA Reinsurance Company Limited operatin . However, the capacity of these reinsurers i limited and more than half of the reinsurance business generated by insurers is placed overseas.Thriving on Borrowed Time In Kenya, most insurance is sold 's who are licensed by the IRA and must meet the requirements se in the Insurance Act. Insurance services are exempt from VAT. Supervision of insurance is based on basic minimum capital and solvency requirements. Life insurance companies are subject to taxation, with income tax based on manageme: Moreover, instead of offering straight insurance, long term insurers also seek to sell customers on more investment-ype products, like annuities (a type of insurance that pays a fixed amount of money to Someone each year) instead of life insurance and unit-linked products, whose sum assured is pegged to returns earned on a unit trust, Thic has enabled insurance companies to compete more directly with other financial services companies such as asset management and invesment advisory firms. To capitalize on this, many insurance companies even offer services such as tax and estate plann Globally, this trend, coupled with increasing consolidation in the nancial services sector has led to an increasingly blurred distinction between insurance, banking and asset management firms. Theglobal financial crisis has resulted in increasing scrutiny by regula and law makers of financial services providers, including insurers, with increasing emphasis being placed on increased capitalization. One way for insurers to boost capitalization is thr Why You Need Insurance ‘When @ car is stolen or catches fire, are you ready for it? Your life could be taken away at any point, is your family ready for it One should not wait to succeed financially be ing at insurance Talways tell people, make sure your children start some form of aa however litle. Insurance is, therefore, a form of saving, People always view it as expensive, but that viewpoint is a trap. Th. time you will really need insurance but won't have it is when you realise that it wasn’t expensive after all‘So What is Insuran ‘The need for medical cover cannot be overstated. The effort by the NHIF to promote universal medical cover is to be commended, but the rode that should be applied requires careful study and involvement by all stakeholders, Private insurance companies do not provide healthca services; they contract specific hospitals and other care givers (clinics, dentists, etc.) to do so. NHIF, on the other hand, applies to patients in all hospitals. While private insurance is business-driven, the NHIF has universal healthcare as its ultimate objective, an aim which includes the government's plan to abolish co-payments and to extend insurance protection beyond the formal sector. The fund also does not discriminate; an individual person's contribution can cover his entire nuclear family, There are no real caps as is the case under private insurance schemes. Moreover, terminally-ill patients are not subjected to further stigmatisation by not being covered or by being subjected to different rates. Nor are contributors subjected to compulsory eligibility tests for them to be covered. All they have to do is contribute to the proposed fund, and they will be c¢ Better marketing is needed by insurance companies. Insurers should not leave marketing to ill-tra ‘hool leavers who are driven more by commission than by customer service. Consumers also need to demand more from insurers to get better service. Disability insurance ensures that your family does not need to either carty outa fundraising of look for other ways to get by if, as a r injury or sickness, one is not able to continue working. A recent positive nt is the coverage of risks that were previously ex a h as a chronic condition. Increasingly, insurers are taking them up, but with limits. This situation is an improvement on the past where patients were left without cover.