Insurers not ready for industry rules
More than half of Kenyan insurance companies are ill-prepared for new accounting rules, experts have said.
The rules, dubbed (International Financial Reporting Standards) IFRS 17, come with strict reporting requirements of the firms’ financial results and tight requirements to increase their capital bases.
Adoption of IFRS 17 is compulsory globally, with a deadline of January 1, 2021.
The rules also require the insurers to invest more in data collection and analysis as well as transparency while drafting policies with their clients.
IFRS 17 also requires that the assets the insurers report be of a certain quality as well as investing more in operational efficiency, which will require the hiring of more staff.
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Global audit firm KPMG yesterday said that of the about 50 firms in the country, half of them had not made meaningful headway in adopting the new rules despite a requirement for them to have started doing so in 2014.
“They have not started to invest in data collection and analysis that will ensure strictness in how they report their financials. On top of that, they are likely not to have enough money to offset the costs that come with implementing these rules,” said Alex Mbai, a partner at KPMG at a forum to review the preparedness of local insurers in adopting the new rules organised by the audit firm in partnership with financial services firm Zamara in Nairobi. The firms have to first adopt IFRS9 rules before graduating to IFRS17.
But according to Zamara Executive Director James Olubayi, insurers are still stuck with the outdated IFRS4 rules, which came into force six years ago and are not in tandem with global accounting standards.
“At the beginning, each insurance company would report its financials the way it wished and keep its capital base at levels it pleased with no strict regulatory control.
Insurance brokers warn of extinction of business
The Insurance Regulatory Authority then began to implement the IFRS4 rules, which are not that strict but have a modicum of regulatory supervision and all insurers could report their financials uniformly,” said Mr Olubayi.
The actuaries from Zamara and KPMG warned that it was inevitable for Kenyan insurers to merge for capital requirement reasons once the new rules come into force.
“A country with 50 insurers but with an insurance penetration of a mere three per cent shows that all these insurance companies are not strong enough to cater for the entire population,” said David Mbatha, associate director consulting at KPMG.