Changes in Kenya’s local marine cargo insurance: a game changer or a trade barrier?

A directive in Kenya is shifting the dynamics in the insurance industry in Kenya: all imports into Kenya must now be insured by local insurance companies. The aim is to boost the local insurance industry, increase revenue and ensure greater insurance coverage over imports. This directive has sparked a thoughtful debate, raising critical questions about its impact on importers, insurers, and the future of international trade, both positive and negative.

The Kenya Revenue Authority (KRA) and the Insurance Regulatory Authority (IRA) jointly announced that, effective February 14, 2025, all importers must obtain local marine cargo insurance when importing. This directive is a measure taken to ensure compliance that stems from the amendments introduced in the Finance Act, 2017. These amendments modified the Marine Insurance Act, Section 16A, mandating persons with an interest in marine cargo to secure insurance from a locally licensed insurer. Additionally, changes to the Marine Insurance Act, Section 20 (4), prohibits taking out insurance from insurers that are not registered under the Insurance Act.

As the position stands, an importer is required to obtain a digital Marine Cargo Insurance cover, without which they will not be able to secure customs clearance. A Marine Cargo Insurance Certificate can be requested through various digital platforms, including clearing agents, importer mobile apps, and dedicated portals. These platforms will be connected to the IRA’s electronic system to ensure verification. Once processed, the digital certificate will be automatically submitted to KRA’s Integrated Customs Management System (ICMS), allowing importers to complete the customs clearance process without delay.

A game changer? Emerging opportunities in marine insurance

Kenya’s bold initiative can be seen as having the potential to reshape the country’s economic future. It can be claimed that Kenya has not had the opportunity to participate in shaping its marine laws and is taking control. 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.

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.

A trade barrier? 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.

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.

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.

Conclusion

The ultimate impact of this directive on Kenya remains to be seen: will it transform the insurance sector, or impede the nation’s full participation in international trade? Follow our article series as we delve into these developments, navigate the complexities and explore potential solutions.