New Kenyan law to rein in troubled insurers and protect policyholders
Compensation Fund Managing Trustee William Masita, National Treasury Chief Administrative Secretary Nelson Gaichuhie, Concord Insurance policyholder Philista Achieng (receiving a cheque) and IRA Commissioner Godfrey Kiptum at the launch of the PCF to compensate Concord Insurance policyholders at the Crowne Plaza on August 18, 2021.
Kenya has drafted a new law to rein in troubled insurers, protect policyholders and inspire investor confidence in the sector grappling with one of the lowest penetration rates in the continent.
The draft ‘Policyholders Compensation Bill 2025’ seeks to ensure compensation to victims of collapsed companies and help monitor the risk profiles of licensed insurers for purposes of undertaking early intervention and prompt corrective action to ensure stability of the sector.
The final draft Bill seen by The EastAfrican seeks the establishment of the Policyholders Compensation Fund to provide compensation to claimants of insolvent insurers, undertake the resolution of troubled insurers and facilitate their orderly market exits through statutory management and liquidation.
The proposed fund shall be a successor to the Policyholders Compensation Fund established under section 179 of the Insurance Act and will facilitate the transfer of long-term insurance policies of insolvent insurers to other solvent insurers.
It will also advise the Cabinet Secretary on the policy that should be followed on the compensation of claimants and resolution of insurers and undertake monitoring of insurers for purposes of early intervention and prompt corrective action.
These early resolution mechanisms include stopping the insurer from transacting any new insurance business in whole or in part, requiring increase in capital to bridge a deficit, requiring additional reserving requirements and requiring the insurer to restructure whole or part of its business.
Other interventions include ordering troubled insurers to file recovery plans and living wills, stopping issuance of dividends, restricting purchase of insurer’s shares, restricting ownership of subsidiaries; or any other action as may be deemed necessary.
“The Board (Policyholder Compensation Fund) shall, in consultation with the Cabinet Secretary, determine from time to time, the amount payable as compensation for different types or classes of insurance policies as provided in the Schedule of Protected Benefits in the Second Schedule and pay such compensation to the claimant as soon as is reasonably practicable after a claim is made,” according to the draft Bill.
The fund shall be administered by a board of trustees which shall comprising a Chairperson, appointed by the President of the Republic of Kenya.
The fund may request access to reports of inspection and any other documents relating to a troubled insurer and to all underlying documents and revisions of reports of inspections.
Kenya’s insurance penetration rate is hovering at around 2.3 percent compared to South Africa (10 percent) and the global average of seven percent, with insurers continuously facing the regulators’ wrath on various breaches.
For instance, in 2022 the Insurance Regulatory Authority (IRA) fined 20 insurers a record Ksh94.85 million ($735,271.31) over various breaches including failure to pay claims, shining a spotlight on the sector that collects billions of shillings from customers with promise of compensation in case of a loss.
IRA data shows the year ended 2022 marked the third straight year of rising fines as well as the number of insurers getting penalised.
The regulator had in the preceding financial year penalised 10 insurers Ksh56.9 million ($441,085.27), which was an increase from Ksh17.6 million ($136,434.1) in 2020 and Ksh2.7 million ($20,930.23) in 2019
The breaches included failing to pay claims, late payment of annual licensing fee and late submission of financial performance records, leaving the regulator in the dark over their stability and safety of covers.
The growth in the number of insurance companies breaching industry regulations puts focus on the stability of many of the firms and presents a worry to millions of customers in an environment where complaints over delayed or unpaid claims have been mounting.
Amongst insurers that were hit with fines included Trident Insurance Company Ltd, Invesco Assurance Company Ltd (currently statutory management), Xplico Insurance Company Ltd (under statutory management), Monarch Insurance Company Ltd and Intra Africa Assurance Company Ltd, Kenya Orient, Madison Life and Pacis Insurance.
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