Insurance regulator grants 3-month premium pay holiday

Insurance policy holders facing financial difficulties due to the Covid-19 pandemic will now get a relief after the industry regulator granted them a grace period for payment and renewal of premiums.

The Insurance Regulatory Authority (IRA) said insurers will be required to give their clients concessions such as deferral of payments or renewal of premiums, including considering offering holidays and the option of staggered payments.

“Insurers should avail policy holders a three-month grace period. The grace period may be over and above any contractual premium holidays already in place for existing policies,” IRA chief executive Godfrey Kiptum said in a statement Tuesday.

In the life insurance segment, policy contracts have specific commencement dates and maturities and customers have to pay, failure to which they lose the policy in the first three years or get refunded a small portion of the premiums they have been paying, also known as a surrender value.

Life policies give clients a month’s grace period and the extension offered by the IRA would come as a blessing to most customers who have lost work, faced pay cuts or closed businesses as a result of the coronavirus pandemic.

However, some industry players said such a holiday would be difficult to apply in the general insurance segment since it would be tantamount to making insurers settle all claims even if no premiums have been paid.

Kenya has ten broad categories of general insurance that include motor, medical, fire, aviation, engineering, liability, marine, personal accident, theft and workman’s compensation with high claims that saw an underwriting loss of Sh2.97 billion in the last quarter of 2019.

“For general it is tricky, especially motor. How do you meet claims if you do not get premiums and this is a cash and carry business?” an insurance manager asked on condition of anonymity for fear of falling foul with the regulator.

“Renewal of policies is coming up and the regulator should be clear on the premise of the holiday and what happens if claims arise.”

Mr Kiptum further said that insurance companies would not be allowed to introduce new product exclusions, or change product terms and conditions without approval from the regulator. Additionally, companies wishing to withdraw some products will have to get approval from the Commissioner of Insurance.

The decision by the regulator to force insurers to pay has thrown insurance companies into uncharted territory.

“All products have certain conditions written with actuarial assumptions and priced accordingly.

“No insurance company is adequately capitalised to pay all claims,” the source said.

Insurance works because individuals and companies pay to spread risk, but when everyone is facing a similar risk then insurance does not work anymore.

Insurers have over the years adjusted their claims to ‘direct and physical loss damages’ and to avoid the growing threat of pandemics with the increasing occurrence of episodes of Sars and Ebola.

Insurance firms have also exempted their policies from covering pandemics knowing that they risk being sent out of business.

When the World Health Organisation (WHO) declared coronavirus a pandemic, the Association of Kenya Insurers (AKI) said the classification of the disease as a pandemic meant that victims would settle their own bills if cases were reported in Kenya.

AKI chief executive Tom Gichuhi had claimed that a serious outbreak of Covid-19 would burst all insurance businesses. However, the industry regulator entered into talks with health insurers and they agreed to cover the medical costs of coronavirus victims in the country.

The regulator now says that companies must submit status report testing whether they face collapse and have adequate funds to meet claims.

“Insurers should conduct and submit to the authority a stress and scenario testing, including updating of capital adequacy calculations and liquidity strains due to the effects of Covid19,” Mr Kiptum said.

Kenya had by Monday reported a total of 281 corona cases with 69 recoveries and 14 deaths, businesses have been shut down as a result of State imposed guidelines on social distancing, casual workers sent home and employees put on reduced pay as firms adjust to a slowdown in the economy.

Medical claims contributed the second largest portion of premiums at Sh42.4 billion in the last quarter of 2019 and attracted the largest claims at Sh20.4 billion in a similar period.

In Kenya, medical insurance remains a loss-making segment due to price undercutting, fraud and high hospital bills. Medical insurers’ underwriting losses doubled to Sh75 million in 2019.