Cargo Insurers ride on Single Window platform to grow premiums

 

Successful implementation of 20 modules and their functionalities, with all the key Partner Government Agencies (PGA) involved in the issuance of international trade related documentations on board the Single Window System (Kenya TradeNet) made it easy for the Kenya Trade Network Agency (KenTrade) to implement Government’s 1st January, 2017 MCI directive.

The Kenya TradeNet System has facilitated the Marine Cargo Insurance (MCI) uptake and the level of compliance of the recent government’s directive, which came into force on 1st January this year requiring the compulsory acquisition of import covers from locally registered insurers. KenTrade which runs the online cargo clearance system, the Kenya National Electronic Single Window System (Kenya TradeNet) has been the key implementing Agency.

Kenya Revenue Authority (KRA) was directed by the Treasury Cabinet Secretary (CS) Mr. Henry Rotich during last year’s budget speech to enforce the often ignored Section 20 (1) of the Insurance Act that requires compulsory procurement of marine insurance from local firms.

Following the directive, a multi agencies committee of six formed a technical team to develop a framework and modalities for stemming the expatriation of millions of dollars that left the country every year in the form of MCI premiums. The team settled on KenTrade as the most strategically positioned body given that the Kenya TradeNet System was already operational, to implement the directive within the six months period as directed by the CS.

Insurance Regulatory Authority (IRA) Acting Commissioner Mr. Geoffrey Kiptum said that MCI premiums have recorded a 40 percent increase in less than two months when the implementation of the directive came into force.

The level of compliance is almost 100 percent, he said, adding that there are proposals to make non-compliance even more punitive.The insurance cost for non-compliance is calculated at 1.5 percent of the total cost of goods and freight, which compares poorly with the rate of MCI from local underwriters that is less than 0.7 percent of the same.

Kenya Revenue Authority (KRA) is already working with KenTrade to develop an enhanced System integration which will be accommodative to the new system of Integrated Customs Management System that intends to replace KRA’s 10 years old Simba system.

As a first time user of the TradeNet System, a trader is required to get access credentials by contacting KenTrade to submit an application for MCI certificate from the Preferred Insurance Company.

“Upon issuance of the MCI, the trader or insurance company will be required to submit to KRA and any other Partner Government Agency (PGA) the certificate through the Kenya TradeNet System,” KenTrade said in an earlier circular sent to stakeholders when the directive came into force.

Todate, KenTrade has successfully implemented 20 modules and their functionalities, with all the key PGA involved in the issuance of import and export trade-related documentation having their processes automated via the Kenya TradeNet System.

Generation of the preclearance documentation- Sea Manifest, permits and licenses- is now being done online by 30 Partner Government Agencies (PGAs) that have been brought on board since the System went live in October 2013, creating an efficiency that made a cargo agent,  Bernard Mwaboza, recount the history of cargo clearance with a sickening nostalgia.

“In the past, it was a nightmare to import goods and clear them the same day, sorry to the bureaucratic bottlenecks that troubled the cargo clearing process. One would spend many hours physically shuttling from one office to the other to get regulatory requirements.”

“The Single Window Platform interlinks a number of Government Agencies involved in the cross-border trade in collaborative engagement” KenTrade Chief Executive Officer Mr. Amos Wangora observed.

The multi-agency task force implementing the MCI directive draws its members from the KRA, IRA, Kenya International Freight and Warehousing Association (KIFWA), Association of Kenya Insurance (AKI), the Ministry of Transport- State Department of Shipping and Maritime Affairs Intergovernmental Standing Committee on Shipping (ISCOS) among others. It has since the roll out carried out various sensitization workshops in key areas such as Mombasa, Kisumu, Eldoret among others and this is ongoing.

Before the new directive and in spite of the law being very clear that all imports and exports must be insured locally except in specified instances, there was non-enforcement of this requirement. This according to Ms Nancy Karigithu, Shipping and Maritime Principal Secretary was due to lack of coordination between various government agencies and industry stakeholders, a weakness that the joint approach hopes to remedy.

According to Mr.Wangora, from KenTrade’s perspective, the online application of the Local Marine Cargo Insurance was not hard to implement because Kenya TradeNet System had been integrated with the Systems of most of the Partner Government Agencies with clearing and forwarding agents already lodging their trade-related documents on the TradeNet System.

The MCI insurance sub-sector was Kshs 2.7 billion annual premium business representing 1.7% of total industry gross premiums as of July 2015, a very low uptake level. According to IRA, there were 49 registered insurance companies in Kenya with 35 offering marine insurance products.

Of the 34 insurers that transacted MCI, only four- GA, ICEA Lion, Kenindia and APA transacted more than KES 200 million each, in gross premiums. Insuring all marine cargo by local companies would increase the marine cargo share of total industry premiums from the current 1.7% to 10% KES 2.7 billion to KES 16-18 billion a year.

A research study carried out by the AKI in 2013 identified factors that contributed to low uptake of MCI in the country and blamed unawareness among importers of the availability of suitable insurance products to cover their incoming cargo as a huge culprit.

Despite the law requiring them to procure insurance locally, most importers from the region buy on Cost Insurance Freight (CIF) and export on Free on Board (FOB). When goods are imported on CIF, it means the importer has no control over the transportation and insurance services in the entire logistical supply chain as it is organized at the source market. And the same is true for FOB exports.

Mr Francis Omondi, an official at the Federation of East African Freight Forwarders Associations (FEAFFA) said that the policy document is issued by the foreign firms making it hard to make claims in case of a loss.

“Worse still, it is hard to know whether appropriate insurance cover for the imports was procured by the supplier,” Omondi said, a position also shared by Mr. Tom Gichuki, AKI Chief Executive.

“The most serious problem is that when insured abroad, importers cannot be sure that insurance was procured in the first place, or which class of insurance was procured by the foreign seller. Also, in the case of a loss, the procedure for processing the claim is so cumbersome and tedious that small importers forego their claims.”

Apart from saving the economy billions, using the correct terms of international trade have other benefits to the economy. Individual importers can be able to negotiate for discounts on freight and insurance rates given to regular and quantity of imports and exports. They also enjoy easy processing of insurance claims and freedom to choose a carrier offering the most suitable terms.

Also, there are other factors such as liquidity problems of most local exporters who are most often constrained to cater for transportation expenses, particularly if the buyer does not pay them in advance.

“Importers generally buy CIF if they are new in international trade or they have very small shipments. It is a more convenient way of shipping since they don’t have to deal with freight or other shipping details, but it comes at an extra cost,” a shipping expert said.