Kenyans pay Sh43bn for non-existent insurance

UAP Insurance was owed Sh1.15 billion by agents as of last year. FILE PHOTO | NMG Businesses, individuals and households have spent Sh43 billion in premiums on non-existent insurance covers after agents failed to remit the payments to insurers, exposing the customers to heavy losses when they make compensation claims.

The Insurance Regulatory Authority (IRA) has disclosed in court documents that insurance brokers collect billions of shillings from customers but fail to remit the money to insurance companies as required. This means that the risks covered, which are in excess of Sh500 billion, are not recognised under the “cash and carry” principle. The principle stipulates that if an insured party suffers loss before the premium is remitted to the insurer then the insured cannot be compensated.

As a result of agent’s failure to meet their statutory obligations, general insurers are owed Sh42 billion while companies offering life covers are owed Sh1 billion. Analysts say that premiums paid to general insurance companies represent between one and five percent of the value of the risks covered, meaning that customers expect to be protected from losses of much higher values.

The Sh43 billion is equivalent to 19.8 percent of the Sh216.2 billion gross premiums that Kenya’s 37 insurance firms underwrote last year.

Unremitted premiums have piled up over the years from Sh26 billion in 2014 to Sh43 billion last year. Policies covering motor vehicles have the highest premiums of between four and five percent of the value of the vehicles. Other policies in the general insurance segment include engineering, domestic fire, industrial fire, medical and theft.

The insurance regulator has disclosed the pile of insurance premiums held by brokers in a court case where the agents are fighting a law that bars them from receiving customers’ payments on behalf of insurers. The Insurance Act was amended effective July this year, barring brokers from handling cash on behalf of insurers. However, the brokers received a temporary court injunction allowing them to continue receiving the premiums until the dispute is determined.

Defending the law change, the sector regulator says brokers were exposing customers to heavy losses besides weakening the financial stability of insurers by failing to remit the premiums collected.

“The intention of the amendments is to enhance liquidity of an insurer and promote payment of claims, while eliminating the perennial problem of outstanding premiums,” IRA chief executive Godfrey Kiptum says in a replying affidavit.

The regulator cites the example of Online […]

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