Lifeline for clients of troubled insurers

Policy holders of firms in financial distress are headed for a major breakthrough after the National Treasury moved to ease compensation rules.

Treasury Secretary Henry Rotich has proposed amendments to both the Insurance Act and regulations to open the Policy Holder’s Compensation Fund to clients of all companies in distress including those put under administration.

At the moment, policy holders can only get compensation from the Fund after their insurer has 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 Fund has not been utilised since its establishment in 2004 despite four insurers going under statutory management,” Mr Rotich noted in his Budget Statement yesterday.

“This is because the current provisions of the law only allow compensation to claimants of an insolvent insurer.”

The changes planned by Mr Rotich are set to benefit policy holders of firms that have gone under in recent years including Blue Shield Insurance, United Insurance Company, Standard Assurance Company and Concord Insurance Company.

The proposed amendments are set to mark the second time the Fund is being changed in as many years to accommodate more policy holders.

Two years ago, 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.