The Challenges Facing Administration Motor
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.
The Challenges Facing Administration Motor Essay Example
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. 1. 1. 1. Underwriting 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 the size of the engine.
The type of cover required could be third party only (TPO), third party fire and theft (TPF&T) or comprehensive. The driver’s details include age, sex, experience, conviction and accident history while the value and age of the vehicle refers to the sum insured and the year of manufacture of the vehicle. Passenger carrying vehicles are generally categorized into the following three classes for underwriting purposes; public hire vehicles, private hire Chauffeur driven vehicles and private hire self-drive vehicles (Canner, 2007). Public hire vehicles are licensed to ply for hire. They include vans, mini-buses and pick- ups.
The vehicles are hailed in the streets though local bylaws restrict the waiting points of such vehicles. This class is regarded as the highest risk because of maximum use of the vehicle and drivers coupled with high levels of moral hazard. Private Hire Chauffeur driven vehicles are hired for passenger travel through the operator’s office or agency. The vehicles tend to cover extensive mileage with drivers working for long shifts. One sector of this class which is regarded as good is the prestige limousine arena where vehicles are used for wedding purposes, as hearses and for other private functions.
Finally, Private Hire Self-drive vehicles are made available to the hirer. Regrettably the vehicles which fall under this class are misused by the hirers. To mitigate this, a pre and post-hire inspection is carried out by the owners of the vehicles (poll M. , et al, 2009). 1. 1. 2. Experience in Kenya Kenya, with an average of 7 deaths from the 35 crashes that occur each day, has one of the highest road fatality rates in relation to vehicle ownership in the world. Nearly 3,000 people are killed on Kenyan roads annually.
This translates to approximately 68 deaths per 1,000 registered vehicles, which is 30-40 times greater than in highly motorized countries. Road traffic crashes are the third leading cause of death after malaria and HIV/AIDS and present major public health problems in terms of morbidity, disability and associated health care costs. Despite this huge burden, road safety measures in place are ineffective, characterized by crack downs on motor vehicles following tragic road crashes. These accidents have been occasioned by the government’s neglect of the road sub-sector in the past 10-15 years (Odero et. l 2003). Insurance companies in the country have been accused of operating like a cartel by agreeing on specific premium rates across the sector. Kimutai, (2009) argues that contrary to a free market economy, insurance companies fix the premiums instead of letting the market forces determine them. However Gichuhi, (2009) observes that the Association of Kenya Insurers (AKI) does not set rates but advises members on what they can charge based on the statistics collected from both the local and international markets. Makove (2009) contends that motor risks are under his close watch due to a number of reasons.
First, motor insurance, particularly third party risks, is compulsory. Secondly, companies that have collapsed have been motor underwriters. Premiums charged must be able to service claims, company expenses and commission to the agents as well as return a little element of profit for the company. Muhindi (2009) adds that even the Policy Holders Protection Fund will suffer because all companies will not accept to contribute to it if companies start going under because, say, PSV underwriters are not charging the right premiums.
If an insurer collapses due to uneconomical rates, then obviously it shakes the public confidence in the industry in general. Omogeni (2009) observes that cartel or not, the process of setting insurance premiums needs a re-examination for the parties unhappy with the present system to not only get but also see justice being done. The insurance industry suffered a major setback when another motor underwriter, Standard Assurance Kenya Ltd, went under in 2008. The heavily indebted insurance firm was placed under statutory management over its inability to settle some Sh100 million in outstanding claims owed to policyholders and creditors.
The closure followed closely on a similar incident involving another motor underwriter, Invesco, which closed its doors in 2009 but was resuscitated early in 2010. Other insurance companies which have gone under in similar circumstances are Kenya National Assurance in 1996, Access Insurance in1997, Stallion Insurance in1998, Lakestar Insurance in 2003 and United Insurance in 2006 (Okoth, 2009). Problems in the PSV underwriting business have remained intact since the Kenya Motor Insurance Pool collapsed in 1979.
The PSV insurance sector, avoided by most insurers, is among the most affected by delays in reviewing the Insurance Act. The PSV insurance sector is seen as a cash cow for fraudsters or ambulance chasers, with elaborate networks that include unscrupulous medical personnel, motor repairers and spare parts dealers, police, lawyers and assessors, among others. This network is so well entrenched that it is attributed to the collapse of motor pools, an initiative that was meant to address weaknesses of the sub-sector (Okoth, 2009).
Previously, there have been several unsuccessful attempts to address these challenges. The first compulsory Kenya Motor Pool was established in 1974 but it faced serious challenges, including the withdrawal of the state-owned KNAC in 1979 before it finally collapsed in 1984. A second motor pool was set up a year later before it was wound up four years down the line after being bogged down by huge liabilities (Timbwa, 2000). 1. 2. Statement of the problem More insurance companies covering public service vehicles (PSV) face the risk of collapse unless urgent measures are taken.