A storm brews inside Kenya’s insurance sector

Posted On Tuesday, 25 June 2019 11:29

By Washington Ndegea

In 2018 June, Treasury Secretary, Henry Rotich strode to parliament carrying the characteristic briefcase with the Kenyan Coat of Arms on the side to read the 2018-2019 budget. That was in the month of June.

Expectations were high, that the prices of various basic commodities would reduce, and that the insurance industry would get much-needed relief creating an enabling environment for business.


Concerns on the prices of the basic commodities were met, but the insurance sector was left reeling by the recommendations proposed in the Insurance Act in form of Insurance (Amendment) Bill 2018, that would criminalise the handling of insurance premiums if passed.

Players in the sector quickly instituted an emergency meeting to examine what could have prompted the Treasury Department to come up with such proposals, even while noting that Section 156 of the Insurance Act catered for that.

It was agreed that the insurance intermediaries, to whom this was addressed, were to quickly come up with a counterproposal to be presented to Parliament when the issue would come up for debate after the Second reading of the House.

We got busy and borrowed our counter proposals from the same document Insurance Regulatory Authority – IRA- had borrowed from in their advice to Treasury, that is, the International Association of Insurance Supervisors (IAIS) which adopts Insurance Core Principals (ICP’s) that provide a globally accepted framework for the supervision of the insurance sector.

The proposals in the budget aimed at deleting the whole of Section 156 of the Insurance Act instead of repealing certain subsections and which we felt would provide a soberer approach to the issue of premiums handling by the intermediaries.

We felt that the proposals as fronted by Treasury would negatively affect insurance penetration in this country. We also noted that there was no stakeholder involvement in this proposal and it caught everyone by surprise.

We would have preferred that a penalty be introduced in Section 156 to address the issue of any embezzlement of premiums.

We were happy when our proposals were accepted by Parliament which saw the bigger picture and that the issue of insurance penetration was tantamount in any decision that Treasury was to look at.

That was until the matter came up to the President for his assent to our recommendations and which he refused to assent. What that means is that premiums handling is going to be a criminal offence. Not embezzlement as would have been expected, but the mere touching of a client’s cheque will be a criminal offence.

That is responding to a mosquito bite with a hammer. The only reason the President gave for refusing to assent to our proposals was that by allowing for the handling of premiums by intermediaries, which they have always done anyway, it will negate the principal of Cash and Carry which will, in turn, affect the ability of companies to pay claims since most of the premiums will be with the intermediaries.

At this point, it would be good to point out that over ten insurance companies in Kenya are not paying claims, whether by default or otherwise.

There’s no single company that has complained of delayed premiums or in effect named any of those that could be delaying their premiums. They are simply not paying claims because they have mismanaged their finances. The Insurance Act is very strict on the non-payment of premiums by intermediaries’ and their licenses are at stake should one fail to pay.

It is also important to point out that since the entry of banks into the insurance field a lot of bad blood has been created, mainly caused by the banks encroaching on and forcing our clients to take up insurance with them.

Our cries to IRA have gone unheeded even when we point out that they are doing insurance business in an unorthodox manner. But then banks cannot let go of insurance broking at all because it has given them free money to trade within the form of premiums.

Banks never remit insurance premiums to insurance companies unless they are forced to do so. Any insurance company doing business with a bank can attest to this. They simply do not follow the insurance rules as stipulated.

Why they are never penalized or chastised is anyone’s guess. The only gainers of this action by the President are the banks because insurance will only be done by them and from experience, they will not follow the rules laid down by IRA.

It is acknowledged that the owners of banks in this country are politically connected and ride roughshod over everyone. The President’s refusal to assent to the Insurance (Amendment) Bill 2018 has several grave implications.

At the top is stalling the growth of insurance in this country. Insurance in Kenya is sold and not bought. We all know that the growth of insurance since independence and even before independence has been largely effected by insurance agents and who have always been in their thousands.

There’s practically no one in this country who doesn’t know of an insurance agent and over ninety per cent of the insureds have interacted with an agent at a point in time. By criminalizing premiums handling, it will become impossible to do insurance business as it is akin to selling your wares while you have closed the door. The many thousands of intermediaries will have to look elsewhere for a job.

Why is the government creating unemployment and going against their Vision 2030 objectives?

Another culprit is insurance broking. Insurance brokers play a very big role in the growth of insurance and are mainly owners of corporate business.

They canvass for the insurance business, advice their clients and even settle small claims on behalf of their principal. It is a rule that brokers receive monies on behalf of their clients and later remit to the principal. Insurance broking has effectively been killed by this bill.

The higher the growth of insurance in this country, the higher the country will earn the much-needed revenue, but this government seems to have shot itself in the foot with this bill.

Why kill the goose that lays the golden egg?

Washington Ndegea is the Chairman - Bima Intermediaries Association of Kenya (BIAK).