Public Service Vehicle (PSV) insurance industry in Kenya is teetering on the brink of collapse due to chronic underpricing of risks, Association of Insurance Brokers of Kenya (AIBK) has warned.
Addressing the press in Mombasa, AIBK CEO Eliud Odiedo warned that PSV underwriters are shutting down at an alarming rate, while those who remain are scaling back on their risk coverage.
He said this widespread exit stems from the industry’s failure to properly price the risks associated with insuring public service vehicles.
“The main issue here is that we’re not pricing PSV risks accurately,” Odiedo explained. “As a result, when claims arise, there simply aren’t enough funds to settle them.”
Commissioner of Insurance Godfrey Kiptum acknowledged the severity of the crisis but expressed optimism that the government would soon intervene to stabilise the sector. “We expect this problem to be resolved in the coming days,” he stated.
Odiedo stressed that a fundamental shift in the rating and risk assessment model for PSVs is urgently needed to ensure that premiums accurately reflect the real risks and liabilities involved.
He issued a stark warning to insurance brokers: the failure to adopt correct pricing could lead to an irreversible market collapse, forcing brokers to make a permanent exit.
This crisis follows the recent collapse of Invesco Assurance Company, a PSV insurer that went under last year, leaving clients and suppliers in financial uncertainty.
The insurer’s downfall, which involved hundreds of millions of shillings in unfulfilled claims and creditor funds, came just over a year after the collapse of Resolution Insurance in April 2022. Both insurers had been placed under statutory management, with government intervention ultimately proving insufficient to rescue them.
On August 14, Invesco Assurance was officially placed under Statutory Management by the Commissioner of Insurance under Section 67 C (2) of the Insurance Act, appointing the Policyholders Compensation Fund (PCF) as the Statutory Manager for a six-month period.
Reflecting on these challenges, Odiedo underscored the urgent need for PSV underwriters to re-evaluate how they assess and price risk to arrive at what he called a “reasonable premium” to sustain the business long-term.
“If we continue as we are, this industry will not be sustainable,” he warned, adding that many PSV underwriters are already closing or reducing their exposure.
