New laws protecting environment create niche market for insurers


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The insurance industry in East Africa has mostly shied away from environmental insurance. This will change with the unveiling of the first comprehensive insurance package for environmental risks. JEFF OTIENO talked to the managing director of Chartis Kenya Insurance about its importance.

Why is environmental insurance important for the East African Community?


The region’s major economic activities are still based on the exploitation of natural resources — large-scale agriculture, agro-based industries, mining, fishing and wildlife tourism — with great environmental consequences. The bloc also relies heavily on imported oil energy, which poses great environmental risks from pollution, especially during various stages of handling, refining and storing.


The region is undergoing rapid urbanisation and a major challenge remains the management of waste from industries and urban centres. Recent developments in stringent environmental-oriented legislation and regulations make the uptake of this insurance policy very promising.


It will help insured enterprises meet compensation expenses — through restoration of impaired environments or sites arising from government or court orders — even where environmental protection is not achieved by existing deterrence measures. This will be achievable without affecting normal business expenditure.


Insurance companies in East Africa have shied away from offering covers for environmentally related problems and disasters, why is this so?


Traditional insurance covers are restrictive and do not provide for the whole spectrum of environmental risks, including gradual or sudden damage, short or long term costs of remedying a damaged site, mitigation and emergency costs.


This is because in the past, corporate executives did not acknowledge environmental risk as being among the most significant of emerging risks. However, owing to its increasing likelihood of occurrence and potentially devastating impact on financial performance, managers are now changing their minds and insurers are now beginning to create a niche to grow their product portfolios.


What prompted Chartis to go against the grain and offer this cover? Environmental legislation in Kenya has grown and continues to develop in depth, substance, and variety. This includes the passing of the Constitution of Kenya 2010, which anchored environmental issues in the Bill of Rights.


These developments coupled with growing awareness of the public about their rights to a healthy and sustainable environment, informed Chartis’s decision to provide a solution to businesses whose traditional insurance covers are ill equipped to respond to the potential risks arising from these developments and help protect their balance sheets against environmental liabilities.


Kindly explain this environmental insurance package and its target group. What is unique about it?


Chartis intends to offer two different policy forms namely Pollution Legal Liability (PLL) and Contractor’s Pollution Liability (CPL). PLL is intended for all types of operational risks, be it in an industrial facility or a simple office or hotel premises, while CPL is made for contractors engaged in construction ranging from civil construction to industrial work.


The uniqueness of both products is that they offer complete pollution related liability protection without distinguishing what was the cause of the problem, whether it was an accidental pollution or slow and gradual seepage related pollution. Furthermore, both these policy forms have the option of offering onsite and offsite coverage and can be extended to cover business interruption caused by pollution.


Insurance coverage in East Africa is still low. How has the problem been addressed with this environmental insurance package?
It is true that insurance penetration in East Africa is low; figures show that insurance industry contribution to the GDP of Kenya is about 2.68 per cent, Tanzania and Rwanda contribute approximately one per cent respectively and Uganda 0.6 per cent. This is low compared with a country such as South Africa at 16 per cent and well below the global average of approximately 7.5 per cent.


Whereas the cost of insurance is a factor, other reasons that are thought to play an even bigger role in low insurance penetration in East Africa include lack of general awareness and education about insurance, lack of disposable income, the need to develop new and efficient distribution channels, cultural practices and lack of products that respond to the needs of customers.


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