The-Accountant-Jul-Aug-2017

Economy
Why Marine
Insurance
is Essential
By CPA Victor Kipkoech, kipkoechvictor@gmail.com
Despite Kenya being a
maritime nation and having
enacted Section 20 of the
Insurance Act in 1984, the
local marine insurance has
remained one of the sleeping giants of the
maritime industry due to non-enforcement
of the law and skewed implementation of
international commercial terms.
A simple definition of the word
insurance would be “Protection against
future loss.” Marine insurance is another
variant of the general term ‘insurance’ and
as the name suggests is provided to ships,
boats and most importantly the cargo that
is carried in them.
From 1st January, 2017 the new law that
compels all importers to buy policy from
local insurance companies takes effect, as
per the requirement for local insurance is
contained in Section 20 of the Insurance
Act but has never been implemented due
to compliance challenges. While some of
the finer points of this new requirement
and how it will be applied are still being
contented, what is clear is that there is
still significant apprehension amongst
some importers. This is to do with a
range of concerns from perceived capacity
challenges, price and coverage provided to
delays in settlement of claims.
The implementation will be overseen
by the Kenya Revenue Authority which
will now demand that importers show
their insurance contract with a local firm
before clearing goods. Importers will have
to produce proof of local insurance before
their goods can be inspected at the source
country. Currently, it is a requirement that
imports be verified in the source country
under the Pre-Export Verification of
Conformity (PVoC) mechanism set up
by the KRA and the Kenya Bureau of
Standards.
For insurance companies this change
is coming at a good time. According to
the World Bank’s recent Kenya Economic
Update, imports of goods and services
are projected to increase 6.2 percent in
2016 and 7.6 percent in 2017 and 2018.
Plus the expected increase in trade with
the completion of the Lamu Port-South
Sudan-Ethiopia-Transport (LAPSSET)
Corridor project. Previously our regulatory
framework and a lack of local market
awareness were blamed for the weak
uptake of marine insurance products.
Marine insurance is very important
because through marine insurance, ship
owners and transporters can be sure of
claiming damages especially considering
the mode of transportation used. Of the
four modes of transport; road, rail, air and
water, it is the latter which causes a lot of
worry to the transporters not only because
there are natural occurrences which have
the potential to harm the cargo and
the vessel but also other incidents and
attributes which could cause a huge loss
in the financials of the transporter and the
importer.
Incidents like piracy and possibilities
like cross-border shoot-outs pose a
major threat when it comes to water
transportation. Therefore in order to
avoid any loss because of such events and
happenings, in the interest of the importer
and the transporter, it is always beneficial
to have a back-up like marine insurance.
While dealing with the scope and range of
marine insurance, it is very important that
18 JULY - AUGUST 2017