Businesses and individuals have spent Sh35.73 billion on non-existent insurance covers after brokers failed to remit premiums, exposing the customers to heavy losses when they make compensation claims.
The Insurance Regulatory Authority (IRA) has disclosed in its latest annual report that its threats to deny the offending agents operating permits had contributed little to lowering the unremitted premiums.
This means that the risks worth hundreds of billions of shillings are not recognised under the “cash and carry” principle, which stipulates that if an insured party suffers loss before the premium is remitted to the insurer then the insured cannot be compensated.
“The amount of outstanding premiums in the industry declined by 14.5 per cent from Sh41.77 billion in 2018 to Sh35.73 billion in 2019,” IRA chief executive Godfrey Kiptum said.
“Out of all the outstanding premiums in 2019, general insurance business accounted for 83.7 percent while long term insurers proportion was 16.3 percent.”
The Sh35.7 billion is equivalent to 15.6 percent of the Sh227.9 billion gross premiums that Kenya’s 56 insurance firms underwrote last year.
Unremitted premiums have piled up over the years from Sh26 billion.
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.
Brokers have blocked the push to block them from handling cash when seeking business on behalf of insurance firms.
The Insurance Act was amended effective July last 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.
Mr Kiptum argues that brokers should only earn commissions for their work and drop their interest in premiums collection.
General insurance underwriters with the biggest exposure are CIC Insurance, which was owed Sh2.3 billion by agents as of last year, followed by Kenya Reinsurance Company (Sh1.95 billion) and East African Reinsurance Company (Sh1.86 billion).
Long-term insurance underwriters with the biggest exposure are Pioneer Assurance, which was owed Sh1.5 billion by agents as of last year, followed by Jubilee Insurance Company (Sh726 million) and CIC Life Assurance Company (Sh661 million).
General insurance includes covers for risks like accidents, fire, theft and medical while long term handles products like pension and life.
The Association of Insurance Brokers Kenya (AIBK) — the agents’ lobby group — argues that the ban on cash handling, contained in the Insurance (Amendment) Act No. 11 of 2019 & Regulations, will drive its members out of business.
During the process of changing the law, brokers had last year lobbied Parliament for a compromise, pushing instead for a penalty to be introduced to address the issue of embezzlement of premiums.
As a result, MPs approved a Bill that allowed brokers to receive premiums but forward the cash to insurers within 14 days.
However, when the Bill went for presidential assent with the brokers’ recommendations, President Uhuru Kenyatta declined to sign it and sided with the Treasury, which had sought to lock out the brokers.
The IRA says the brokers control 41 percent of the business underwritten in Kenya, arguing that their delay remitting collections was impacting negatively on the financial position of insurance companies.
Some insurance brokers’ say they are struggling to recover millions of shillings in premiums from collapsed and struggling firms.
Some of the outstanding premiums, they say, stem from payment arrangements that allow corporate bodies to pay in instalments.
Millions of outstanding premiums are owed to customers under Insurance Premium Financing (IPF), a facility that enables you to pay your insurance premiums in instalments rather than in one lump sum amount, brokers say.