The Challenges Facing Administration Motor Insurance Management and Operational Risk in Kenyan Insurance Company

Topics: Insurance, Underwriting, Insurance law Pages: 49 (15614 words) Published: April 29, 2012
The challenges facing administration Motor Insurance management and operational risk in Kenyan Insurance Company

Presented by

Moses Mbwika- 11-909

Dr. Peter Ngure

Paper submitted in partial fulfillment of the course BUS 611: Business Research Methods

Daystar University

Nairobi, Kenya

29th April 2012

1.1. Background of the study
Although the exact date of birth of the insurance industry in East Africa is not known, there is evidence that the first marine agency was established at the Island of Zanzibar in 1879. It took another twelve years before another marine agency was established in Kenya in 1891. Motor vehicle owners in Kenya were legally compelled to take out insurance against traffic accidents involving third parties in the mid 1940s under the Road Traffic Act (RTA). The history of public service vehicles (PSV) dates back to the late 1950s when there appeared a new form of taxi operating between the city centre of Nairobi and Makadara in Eastland of the city. The fare, irrespective of distance was thirty cents, the Kiswahili equivalent being “mapeni matatu,’ which was adopted as reference to this taxi and shortened to “Matatu” (Timbwa, 1985). The origin of Matatu industry can be traced from the type of transport system that operated in towns in the early 1960s. Initially, the Kenya Bus Service existed since 1934 as the sole legal provider of public transport services. It was jointly owned by the United Transport Overseas Ltd (75%) and the Nairobi City Council (25% of the shares). Public transport in Kenya, especially in urban areas is dominated by Matatu vehicles. In the early 1960s, the total number of Matatus operating in the country was less than 400 and operated in form of taxis. In 1973, President Jomo Kenyatta, responding to lobbying from Matatu operators declared that they were a legal mode of transport and could carry fare paying passengers without obtaining special licenses to do so but had to comply with existing insurance and traffic regulations (Aduwo, 1992).

By 1990, of the 333,300 vehicles registered in the country, 17,600 were Matatus (Bhushan, 1993 cited in Muyia, 1995). By 2003, the number of Matatus operating in both urban and rural areas was estimated at 40,000 (Asingo, 2004). They comprised of Nissans, mini-buses and pickups. They provided employment to nearly 160,000 persons and generated vast revenue for the Government in form of charges for licenses, duty, VAT and other taxes.

In addition, the industry plays a leading role in transportation of persons and goods in both rural and urban areas. Unfortunately, the industry’s vast growth has been accompanied by increasing road traffic accidents that have threatened safety of Kenyan travelers. The accidents increased by 182% from 3,578 in 1963 to 10,106 in 1989 and 11,785 in 1994 (Muyia, 1995). In these accidents, 2,014 persons were killed, 6,650 were seriously injured and 11,094 had minor injuries. The causes of the accidents included reckless driving, non-roadworthy vehicles, overloading and poor conditions of the roads.


Underwriting is the selection and rating of risks by the insurer (Canner, 2007). There are various considerations that guide the underwriting process leading to the decision as whether to accept a given risk or not and if accepted at what premium rate. The key considerations in motor underwriting include; Use of the vehicle, District of garage, Make and type of the vehicle, seating and carrying capacity, the type of cover required, the driver’s details and the value and age of the vehicle.

Use, refers to whether the vehicle is public hire or Private hire. District of garage refers to the address where the vehicle is normally garaged. Make and type of the vehicle specifies whether the vehicle is an Isuzu van, Toyota saloon, Mazda bus etc. Seating and carrying capacity refers to the number of passengers including the driver and...

References: Aduwo, G.O.and Obudho, R.A. 1992, Urban transport system: A case of the Matatu mode of transport in the city of Nairobi, Kenya. In: African Urban Quarterly, Vo.7.
AKI, 2007, ‘General Insurance Update’, AKI Bulletin.
Anyanzwa, J. (2010), ‘PSV Insurer Launches Bid to Raise Capital’, The East African Standard.
Asingo, P.O. (2004), The Insitutional and Organizational Structure of the Public Road Transport in Kenya, IPAR Discussion Paper No. 50.
Cannar, K. (2007), Motor Insurance, CII Tuition Text.
Chitere, P.O (2004), ‘Matatu industry in Kenya: A study of the performance of the owners, workers and their associations and potential for improvement’, The Granary, Kenya.
Chitere, P.O and Kibua, T.N
Connellan,T.K and Zemke,R (1998). Sustaining Knock your Socks off Service: American Management Association: New York.
Cook, S (2005). Customer Care excellence: How to create an effective customer Focus. 5th edition, Replika Press India.
Dionne, G and Doherty, N.A. (1994), Adverse Selection, Commitment and Renegotiation: Extension to and Evidence from Insurance Markets, Journal of Political Economy, 102, pp. 209 -235.
Gachuki, D. 2004, A Brief Commentary on Legal Notice No.161, IPAR, Nairobi Republic of Kenya 2003 and 2004 Legal Notices Nos. 161, 83 and 97.
Gichuhi, T. (2009), ‘Insurance premiums, the work of a cartel or market forces at play?’ The Financial Post.
GOK (2007), The Insurance Act Cap 487 Laws of Kenya. Revised Edition, Government Printer Industry in Kenya.
IRA, 2009, ‘Motor Underwriting Guidelines’.
IRA, 2010, ‘Motor Underwriting Guidelines Clarification Circular’.
IRA report (2007). End of year report. 31stDecember. Government printer.
Irungu ,B. (2004). Claims payment: Effect on customer service: The Kenya insurer Journal 2(2), Nairobi.
Jonah, B.A. (1986), Accident Risk and Risk-taking Behaviour Among Young Drivers, Accid Anal Prev, 18, pp.255-271.
Juran, J
Kapila, S., Manundu, M and Lamba, D. 1986, The Matatu mode of public transportation in metropolitan Nairobi. Nairobi: Mazingira Institute.
Khayesi, M. (1999), The Struggle for Regulatory and Economic Sphere of Influence in the Matatu Means of Transport in Kenya: A Stakeholder Analysis, Sixth International Conference on Competition and Ownership in Land Passenger Transport.
Khayesi, M. 1997 Matatu workers in Nairobi, Thika and Ruiru towns, Kenya: Research report, Institute for Development Studies, Nairobi.
Kimani, P.N., Kibua, T.N. and Masinde, M. (2004), The Role of the Matatu in Kenya: Economic Costs, Benefits and Policy Concerns, Discussion Paper No. 053/2004, Institute of Policy Analysis and Research.
Kothari, C R, (2003). Research Methodology Method and techniques. Second edition. Wishwa Prakashan New Delhi.
Kuria, C.N, (2009), ‘State of Insurance Industry’, AKI Annual General Meeting, 26th March, 2009.
Laudon, K.C and Laudon, J. P, (2007). Essentials of Business Information systems, 7th edition, Pearson education Inc.
Lev, B, (2001). Intangibles Management, Measurement and Reporting Washington DC: Brookings Institute Press.
Lovelock and Cristopher (2001). Services Marketing: People, Technology, Strategy, 4th Edition, Prentice Hall.
Macharia, R.W. (2009), The Motor Industry in Kenya: Adopting the No-Fault Insurance System, Journal of Social Science.
Maina, P.M. (2001).Perceived service quality. The case of Mobile phone services in Kenya. Un Published MBA project, University of Nairobi.
Makembo, S.M. (1992), ‘An Investigation of the Problems in the Compensation System for Personal Injuries and Deaths in Motor Insurance in Kenya’, Unpublished MBA Project, University of Nairobi, Nairobi, Kenya.
Makove, S. (2009), ‘Insurance premiums, the work of a cartel or market forces at play?’ The Financial Post.
Marwa S. (2007), ‘Principles of Insurance’, Essentials of Risk and Insurance, Jomo Kenyatta Foundation.
Mugenda A. and Mugenda O. (2003). Research Methods. Quantitative and Qualitative Approaches. African Centre for Technology Studies (ACTS Press), Nairobi, Kenya.
Muhindi, S. (2009), ‘Insurance premiums, the work of a cartel or market forces at play?’ The Financial Post.
Munguti, P. (2006). Where do Insurers Go Wrong? The Underwriting standards Or Handling claims. Journal of the Association Of Kenya Insurers, (1),Nairobi.
Mutai, B. (2003). How to write quality Research Proposal. A Complete and simplified Recipe. Nairobi: The Lley publications.
Muyia, 1995 The forgotten workers: The case of public service drivers in Eldoret Town, Kenya,
Ndung’u, J. (2009), PSV Insurance Insolvent- Dossier, Daily Nation, 25th April, 2009.
Njagi, N. (1997). Factors affecting customer service in the banking industry. Unpublished MBA project paper, faculty of commerce, University of Nairobi.
Odero, W., Khayesi, M. and Heda, P.M. 2003 Road traffic injuries in Kenya: Magnitude, causes and status. In: Injury Control and Safety Promotion, Vol.10 (1-2).
Okoth, J. (2009), ‘Collapse of Standard Assurance sparks fresh market jitters’ The Standard 17th March, 2009.
Olotch, W. (2006) The Insurance Market, The African Reinsurer, Vol.20 June, 2006.
Omogeni, J (2009) ‘Insurance premiums, the work of a cartel or market forces?’ The Financial Post.
Omondi, G. (1988), ‘A Study of the Operations of the Kenya Motor Insurance Pool’, Unpublished MBA Thesis, University of Nairobi, Nairobi, Kenya.
Ondari, J. (2009), PSV Insurance Insolvent- Dossier, Daily Nation, 25th April, 2009.
Oyare, R. (2004) Customer Value Proposition: Quality and Business process Engineering: Journal of association of Kenya Insures,2(2),Nairobi.
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • insurance Essay
  • Principle of Risk Management and Insurance Essay
  • Essay on Risk Management in Insurance
  • Insurance and Risk Management Iia Assignment Essay
  • Insurance and Risk Management Essay
  • Insurance as a Tool of Risk Management Essay
  • Insurance and Risk Management Essay

Become a StudyMode Member

Sign Up - It's Free