Clients of fallen insurance firms get Sh4bn

Thousands of policyholders and beneficiaries in collapsed insurance firms are in line for a Sh4.3 billion State payout following changes to the law that previously barred compensation before insurers are wound up.

The claims are from four insurance firms- United Insurance, Standard Assurance, Blue Shield Insurance and Concord Insurance—which have gone under, but have not been declared insolvent.

The compensation follows changes to the law in December, which allows payments to clients of all companies that got into distress from January, 2005, including those put under administration.

Previously, policy holders could only get compensation from the Policyholders Compensation Fund (PCF) after their insurer had been declared insolvent.

The fund was established to cushion holders of insurance policies in the event that companies are unable to discharge their services.

The State-run fund estimates the claims amount to about Sh4.39 billion and the kitty has risen to nearly Sh10 billion over the years.

“To facilitate the process of accessing funds including the claim form and list of supporting documentation (required), terms and conditions will shortly be gazetted for the information of the general public,” PCF head of secretariat John Keah told the Business Daily.

The payment will offer some relief to policyholders and beneficiaries, some of whom have been left in misery for nearly 15 years.

This is because Rule 11 of the insurance (Policyholders Compensation Fund) regulations only allowed claims to be processed after an underwriter becomes insolvent, defeating the objective of cushioning policyholders from losses accruing from distressed firms.

Former Treasury Secretary Henry Rotich had on June 13, 2019 deleted the regulation through a Gazette notice, setting the stage for the payments to be effected before the process of liquidating a failed insurer is completed.

But it will only compensate policy holders in insurance firms that got distressed after PCF’s formation in January 2005, locking out Access Insurance Company, Stallion Insurance Company Ltd, Kenya National Assurance Company Limited and Lakestar Insurance Company.

Tom Gichuhi, chief executive of Kenya Association of Insurers (AKI), said the onset of compensation signals the start of full operation of the fund and will boost the confidence of clients in Kenya’s insurers.

“The fact that there’s a change in the regulations to require that immediately a company is put under statutory management compensation can kick in is a plus to the industry,” Mr Gichuhi said.

“It’s going to raise the confidence levels in the insuring public. This is because they will know that even if a company is to come down, they will access payments for claims and other liabilities.”

Insurance penetration shrunk for five years in a row to 2.43 percent of Gross Domestic Product (GDP) in 2018 from 2.71 percent the year before. It hit a 15-year low in 2018.

This is a pointer that the sector has failed to ride on insurance opportunities presented by the expanding economy.

The PCF was established in 2004 following reforms undertaken in the insurance sector in response to the collapse of several insurance companies which exposed policyholders to risks and losses of insurance benefits.

In 2017, the State changed the regulations to raise the compensation limit to Sh250,000, up from a maximum of Sh100,000 that policyholders of collapsed insurance firms were initially supposed to get.