Businesses and individuals have spent KES35.73bn ($329m) on non-existent insurance covers after brokers failed to remit premiums to insurers, exposing the customers to risks and heavy losses that the clients thought they had been insured against.
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, reported The East African Business Mirror.
The Insurance Regulatory Authority (IRA) disclosed in its latest annual report that its threats to deny the offending agents operating permits had contributed little to resolving the unremitted premiums.
“The amount of outstanding premiums in the industry declined by 14.5% from KES41.77bn in 2018 to KES35.73bn in 2019,” IRA chief executive Godfrey Kiptum said.
“Out of all the outstanding premiums in 2019, general insurance business accounted for 83.7% while long- term insurers' proportion was 16.3%.”
The KES35.7bn sum owed was equivalent to 15.6% of the KES227.9bn gross premiums that Kenya’s 56 insurance firms underwrote last year.
The Insurance Act was amended in 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 a case they filed was heard and determined.
Defending the law change, the IRA 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 collecting premiums.
The Association of Insurance Brokers Kenya (AIBK) — the agents’ lobby group — argues that the ban on cash handling will drive its members out of business.
The IRA says the brokers control 41% of the business underwritten in Kenya, arguing that the delay in remitting premium collections was impacting negatively on the financial position of insurance companies.