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THE IMPACT OF THE 2003 REFORMS ON THE PUBLIC SERVICE VEHICLE INSURANCE SECTOR IN KENYA: CASE STUDY OF ‘MATATU’

The purpose of this study was to determine how the implementation of Legal Notice Number 161 in 2003 by the Government has influenced insurer’s practices with respect to underwriting and claims in the PSV sector. The study focused on ‘Matatus’ where there was little enforcement of the law prior to the introduction of the legal notice. The study had two objectives, namely, to determine how the provisions of Legal Notice Number 161 have affected the underwriting and claims process of PSV insurers in Kenya and to determine challenges faced in the underwriting and claims process by PSV insurers.

The literature review explored concepts in risk and insurance, reviewed underwriting considerations in commercial motor vehicles, moral hazard and adverse selection challenges in automobile insurance, commercial motor vehicle insurance claims process, and the commuter transport sector in Kenya. The commuter transport sector analysis of the situation before and after the implementation of legal notice number 161. Finally, it reviews general challenges faced in insuring public service vehicles in Kenya. The study used an exploratory survey design. The population of study was confined to the six insurance firms which insured PSV. Data was collected by means of a questionnaire that employed open and closed ended questions. Descriptive statistics consisting of the arithmetic mean, standard deviation, and graphical methods were used to present the findings.

The study concluded that with underwriting, after implementation of the legal notice, there was a lesser emphasis on driver related issues as seen before implementation and a greater emphasis on mechanisms that would be used to implement risk. This is seen in the emphasis on co-insurance and vehicle conditions after the legal notice was implemented. Claims related factors retained fraud detection as a top priority before and after implementation. Apparently, fraud is endemic since in both cases, the insured will always be trying to break the law and this risk would need to be mitigated. This is in a way supported by the fact that sprains and strains, which are difficult to diagnose and easy to defraud with, were the challenge that bothered insurers the most. The top underwriting challenge, that is issuance of fake motor vehicle inspection certificates increasing insurer’s adverse selection hazard, also reflected this risk.

Assistant Coordinator

Dr. Mose Aranga

Assistant Coordinator

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