High cost of healthcare pushes down AAR 2016 profit

AAR Insurance net profit for 2016 fell 23.4%, weighed down by rising claims and higher operating costs.

The insurer’s net earnings dipped to Sh218 million last year from Sh285 million in 2015. Net claims went up 13.6 per cent to Sh2.79 billion in 2016 from Sh2.45 billion the previous year.

AAR managing director Caroline Munene said a tough operating environment characterised by increased cost of healthcare eroded the underwriter’s profit.

“Several factors are driving up health costs in the country including inefficiencies, over-servicing those with insurance, inflated consultancy, diagnostic and procedure fees. These among other factors have led to increase in claim ratios and thus declining revenues for insurers,” she said.

The insurer’s operating expenses increased 15.7 per cent in 2016 to Sh859 million compared to Sh742 million the previous year.

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Its gross written premiums increased 48.5 per cent from Sh4.4 billion in 2015 to Sh6.5 billion while operating income rose 8.72 per cent to Sh4.25 billion last year compared to Sh4 billion in 2015.

Ms Munene said escalating costs led to higher premiums. “Many countries including Kenya face the daunting task of taming the spiraling costs of healthcare. This calls for efficiency in the health system. However, achieving efficiency involves a delicate balance between cutting costs and ensuring quality and availability of services,” she said.

[crp]