A directive in Kenya that all imports into Kenya must be insured by local insurance companies is shifting the dynamics in the insurance industry in Kenya and can be seen as having the potential to reshape the country's economic future, according to a commentary posted on the website of the global law firm, Clyde & Co.
Managing partner of Jared Kangwana & Co Advocates LLP in association with Clyde & Co, Mr Jared Kangwana said that the aim of the directive is to boost the local insurance industry, increase revenue and ensure greater insurance coverage over imports.
The Kenya Revenue Authority (KRA) and the Insurance Regulatory Authority (IRA) jointly announced that effective 14 February 2025, all importers must obtain local marine cargo insurance when importing. The main advantage associated with obtaining local marine insurance is the expansion and empowerment of the local insurance sector, rising to its fullest potential and ensuring greater premium retention.
Mr Kangwana added, “Additionally, the directive may present an opportunity to deepen the growth of reinsurance business locally and internationally by encouraging collaboration between local insurers and local reinsurers as well as between local insurers and international reinsurers, which would create capacity and strong backing to underwrite complex risks and encourage larger volumes of imports.
“Overall, the market expansion may translate to both foreign and local investment to ensure capacity building, continuous development of knowledge and specialisation within the industry and create a competitive and resilient insurance sector.”
Emerging challenges in marine insurance
Despite the opportunities this directive may present, doubts and concerns linger among many industry players about the effects this will have on international trade laws, Mr Kangwana cautioned.
Freedom to choose an insurer
One of the challenges that emerges from this directive is the complications that will arise from Cost, Insurance, and Freight (CIF), where sellers are typically responsible for obtaining insurance covers, up until goods reach the buyer’s port. The seller normally has the freedom to choose an insurer, often one within their jurisdiction, and with whom they have existing relationships or have favourable terms. This directive, however, undermines their autonomy to select the insurer of their choice, therefore limiting the seller's control over the insurance process.
This not only complicates contract negotiations but may result in reluctance or delays as the seller navigates unfamiliar insurance markets. Additionally, the directive is likely to impose an additional administrative and due diligence burden on the seller, who must now ensure that the selected local insurer meets the seller’s requirements in terms of coverage, claims and reliability.
Similarly, when it comes to Free on Board (FOB) arrangements, the buyer is normally responsible for arranging insurance coverage once the goods have been loaded onto a vessel. The buyer has flexibility in choosing an insurer. They can either arrange their coverage or negotiate with the seller to cover the goods until they arrive at the buyer’s port. The directive, however, restricts the buyer’s freedom to choose their insurance provider and prevents the buyer from participating in the competitive market.
The restriction on the freedom to choose an insurer may also weaken competitive pricing mechanisms. Importers and exporters will now be confined to a limited pool of insurers, which can decrease flexibility on pricing as compared to open markets, which encourage competition and may offer lower premiums and innovative solutions.
Pre-existing agreements
The directive also raises substantial issues concerning pre-existing agreements with international insurers who already have policies in place. A lacuna now arises on how to navigate these policies and has the potential of transcending into legal hurdles due to unwarranted breaches in order to comply with the directive.
Industry players also worry that local insurers may not have the financial muscle or expertise necessary to underwrite policies of high-value cargo. This concern is amplified by external pressures, including geopolitical events like the Houthi attacks in the Red Sea, which are inflating shipping costs, and rising threats of piracy, thereby driving up insurance costs. These combined factors make it difficult to assess if Kenya is ready to make this move.
Impact
The ultimate impact of this directive on Kenya remains to be seen, with the question hovering over whether it will transform the insurance sector, or impede Kenya’s full participation in international trade.
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